Follow-up financing as a rollover,
forward loan or debt rescheduling
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Avoid risks with the right follow-up financing
The main contractual components of a construction loan are the interest rate, the loan instalment, the total loan term and the fixed-interest period. The closer the end of the fixed-interest period approaches, the more the question arises for borrowers: What happens afterwards? There are various forms of follow-up financing that we would like to explain to you.
Follow-up financing, what does it mean?
Follow-up financing is a new agreement that must be made after the fixed-interest period for a real estate loan has expired. The follow-up financing can be concluded with the house bank or another bank. With most construction loans, there is a residual debt at the end of a fixed-interest period - e.g. after 5, 10 or 15 years - which must be refinanced again, so to speak, when the fixed-interest period expires. This concerns in particular the amount that cannot be repaid from equity capital. There are various forms of follow-up financing.
Initial loan amount
Residual debt follow-up financing
End of fixed-interest period
after 10 years
Forward loan from 66 months to
12 months before end of fixed interest rate period (house bank or external bank)
Debt rollover or rescheduling
from 12 months before the end of the fixed interest period (house bank or external bank)
Variable loan with variable interest rate
after end of fixed interest rate period
nach 10 Jahren
Forward-Darlehen ab 66 Monate bis
12 Monate vor Ende Zinsbindung (Hausbank oder Fremdbank)
Prolongation oder Umschuldung
ab 12 Monate vor Ende Zinsbindung
(Hausbank oder Fremdbank)
Variables Darlehen mit variablen Zins
What forms of follow-up financing are available?
With the loan commitment and the signed loan agreement, the bank guarantees the borrower that it will always provide a construction loan for the entire term of the loan. Some loan components can be renegotiated after the fixed interest rate has expired, such as the interest rate or the repayment amount. There are various forms of follow-up financing: prolongation, forward loans and rescheduling.
A rollover is the short-term extension of a real estate loan after the end of the fixed-interest period. The essential components of the loan agreement remain in place. The prolongation is a form of follow-up financing that is handled by the house bank. Usually, the banks prepare various prolongation offers 6 months before the end of the fixed-interest period and send them to the customers by post. These often differ in the length of the fixed-interest period. The customers only have to choose one option and sign the letter and send it back to the bank. There are no costs for the clients and no additional creditworthiness or property documents have to be submitted. It is therefore very convenient for all parties involved. MEIN FINANZKONZEPT is a top partner of ING-DiBa and also your contact for the prolongation of your construction financing with ING. Contact us, we will be happy to help you.
2. Forward loan:
The forward loan is a classic annuity loan that can be used in the context of real estate financing. The forward loan has the special feature that the loan is only paid out to the borrower after a lead time. Most banks offer a lead time (forward period) of between 6 and 66 months. For each month of the forward period, you have to expect an interest surcharge of about 3-5 basis points. Most banks do not charge these interest surcharges for the last 12 months of the lead time. A forward financing with a lead time of 60 months has an interest surcharge of approx. 1.44% p.a. and is thus more expensive than a comparable financing at today's interest rate conditions. What is the advantage of a forward loan? The advantage is that borrowers with an existing mortgage can contractually agree on follow-up financing for the remaining debt with the bank many years before the fixed interest rate period expires. This can be done with the borrower's bank or with another bank (rescheduling). Borrowers thus have the opportunity to take advantage of a changed and more favourable interest rate environment and can thus contractually agree the follow-up financing for the existing real estate financing at an early stage. In this way, interest rate risks can be avoided. This procedure makes sense if it is expected that interest rates could deteriorate in the next two to five years. Looking at the current inflation figures in Germany, it could be that the ECB's interest rate policy could change in the medium term in order to curb price increases. In that case, a forward loan for existing home financing, for example, would make perfect sense. With a forward loan, the loan components such as the loan instalment or the amount of the remaining debt to be financed can be changed. If you agree on a forward loan with your bank, there are usually no costs involved. You only have to submit your current salary slips to your bank. However, if you plan to change banks because other banks offer significantly better interest rates for your follow-up financing, you will have to expect additional costs. These costs are so-called assignment costs for the existing land charge, which is assigned in favour of the new bank when you change banks (rescheduling). The assignment costs amount to approx. 0.2% of the land charge to be assigned.
3. Debt rescheduling, on to the cheapest bank:
If you decide not to arrange your follow-up financing with your house bank or initial financing bank and look for a new bank for your real estate financing on the market - for example, because of better interest rate conditions - this is called a rescheduling of your construction financing. The rescheduling can take the form of a forward loan or shortly before or after the fixed-interest period expires. With a rescheduling, you agree on a new loan contract with new loan parameters with the outside bank. This form of follow-up financing is like a new financing application and the usual creditworthiness and property documents must be submitted. Furthermore, a debt restructuring is not free of charge. Here, too, fees are charged for the assignment of the land charge.
4. Variable follow-up financing
If you have contractually agreed a real estate loan with your bank, then the bank must always offer you an offer for follow-up financing during the originally agreed loan term. If the borrower and the bank cannot agree on a follow-up financing and the borrower does not present his bank with an alternative bank for rescheduling, the existing real estate loan will be continued by the bank after the end of the fixed interest period. The follow-up financing then takes the form of a variable loan with a variable interest rate. The interest rate is usually 5 % above the ECB base rate. This agreement is valid until the borrower and the bank have sought an alternative.
At what point should I start looking into follow-up financing?
Finding the right time for a follow-up financing is not always easy. There are different reasons why a follow-up financing should take place shortly before or, for example, 60 months before the fixed interest rate expires. It always makes sense to seek professional advice and take a look at the current interest rate market. In addition, you should think about the remaining debt to be financed and whether you would like to make partial repayments from your own capital at the end of the fixed-interest period or through special payments during the fixed-interest period. In the current interest rate phase, follow-up financing with an expiry of 36 - 12 months is the most favourable. However, follow-up financing with a lead time of 60 months can also be very interesting at present, as the interest rate market could well change in the coming years. There are no guarantees for low interest rates, nor will there be in the future. Do you need help and professional advice for your follow-up financing? Then give us a call, we will be happy to help you.
What are the costs of follow-up financing?
Follow-up financing usually incurs low costs. If you refinance your mortgage with your bank and you do not want to take out additional capital that could exceed the existing mortgage amount, you will not incur any additional costs. If you have decided to refinance your property with another bank and take out a forward loan, the existing land charge must be assigned to the new bank. The assignment costs amount to approx. 0.2% of the sum to be assigned. If the amount to be discharged is significantly less than the existing land charge, then you can order a partial discharge of the land charge via a notary public if necessary. The cancellation costs also amount to approx. 0.2 % of the land charge to be cancelled.
When can a follow-up financing be terminated free of charge?
Follow-up financing can only be terminated free of charge after the agreed fixed-interest period has expired. According to the BGB, this is possible after ten years at the latest (§ 489 BGB). This means for you: If your fixed-interest period is 15 or 20 years, you can already change providers free of charge after ten years. In the case of a forward loan, the forward period is also considered the "fixed-interest period". This means, for example, that if you took out a forward loan three years ago to refinance your existing mortgage, you can cancel this loan separately in seven years.