Follow-up financing for real estate loans: explanation, advantages, disadvantages, types & tips – Frequently asked questions

Follow-up financing – This article deals with the topic of follow-up financing for real estate loans and the question: What if the fixed interest rate on my loan expires but there is still outstanding debt? First, we explain what exactly follow-up financing is and the advantages and disadvantages associated with it. It then presents various options and loan forms for follow-up financing and gives tips on what is important. Click here for the follow-up financing calculator including a comparison of offers: Follow-up financing.

The most important things at a glance

Follow-up financing is used if the remaining debt on a loan to finance a property cannot be repaid or a new fixed interest rate is to be fixed because the fixed interest rate is due to expire.

There are various options for arranging follow-up financing. Follow-up financing options include interest rate prolongation, debt rescheduling, forward loans or, if you have several loans, loan consolidation. Follow-up financing can be concluded either with the old bank or with a new financial institution. A new credit check may be necessary, depending on the type of financing.

In general, it is important to plan follow-up financing early: the earlier, the better (at least 3 months before the end of the loan term). There are also various types of loans to choose from for the follow-up financing of a property. More on this below. Compare current conditions for your follow-up financing immediately with the Immobilien-Erfahrung.de follow-up financing calculator.

5 Frequently asked questions about follow-up financing are answered below:

• What is follow-up financing?
• What are the advantages and disadvantages of follow-up financing?
• What do I need to bear in mind for follow-up financing?
• What are the options for follow-up financing?
• What types of loan can I choose from for follow-up financing?

1st question: What is follow-up financing?

Follow-up financing comes into effect after the fixed-interest period of a real estate loan. Many borrowers have not yet repaid the loan within this period. Borrowers can then either make a new agreement to repay the remaining debt with the same bank or opt for debt rescheduling. Follow-up financing is a contract offered by banks and savings banks and can be used for all types of property. It can take place at the end of or during a loan term.

2nd question: What are the advantages and disadvantages of follow-up financing?

Question 3: What do I need to bear in mind for follow-up financing? – 3 tips

Follow-up financing is important:

1. Compare offers (e.g. with the follow-up financing calculator)
2. Do not look before negotiating with the bank (to get the best conditions)
3. To create a complete repayment plan at an early stage

Before deciding on follow-up financing, you should compare offers from different lenders to ensure that you have received the best offer for your financial situation. It is important to consider not only the interest rate, but also the total cost of the loan and other conditions such as processing fees.

Once you have received an offer, you should try to improve the conditions by negotiating with your bank. It is usually effective to mention the offers of other banks. House banks may then try to lower the interest rate or reduce the processing fees.

Making sure that you have a realistic plan for repaying the loan is essential to avoid the risk of falling into debt. Take into account your income, monthly expenses and financial goals. If borrowers are having difficulty repaying their loan, they should contact their lender for help.

4th question: What are the options for follow-up financing?

There are several ways in which you can arrange the follow-up financing for your property:

• Interest rollover
• Debt rescheduling
• Forward loan
• Loan consolidation

Interest rollover

A prolongation is the extension of an existing real estate loan after the fixed interest rate has expired. The advantage here is the low-cost nature of the follow-up financing. The disadvantage is that the interest rates are not always attractive.

In the case of an interest rate rollover, the bank’s offer must be signed and returned to the bank within 14 days. The risks of the follow-up financing option lie in the convenience, the associated wrong decisions and the inflexible contract design. However, if the costs of transferring the loan and collateral to another credit institution or bank are higher than the interest savings, the prolongation is usually still worthwhile.

Debt rescheduling

The opposite of prolongation is debt rescheduling, i.e. replacing an existing loan with a loan from another bank. The advantage here is the cost savings with offers from other banks that want to attract new customers with better loan conditions. However, debt rescheduling involves expenses that are saved by renewing the loan.

Therefore, the profit from the debt rescheduling should always exceed the fees for the loan repayment. Tip: Debt rescheduling is already profitable if the new interest rate is 0.2 percentage points higher than the old one. The debt rescheduling process takes longer than the prolongation as you first have to obtain offers, then cancel the loan and finally conclude the new contract.

Forward loan

The forward loan is another follow-up financing option. The special feature here is the possibility of hedging the interest rate 6 months to 5 years before the interest rate expires, which appears attractive for borrowers who expect interest rates to rise. The advantage here is that you can save interest in times of rising interest rates.
The disadvantage, on the other hand, is the high premiums (0.01 to 0.02 percent per month). Another risk is that you can only make forecasts, but interest rates could also fall over time, which would result in higher costs.

It should be noted that the withdrawal period alone is 14 days, after which the early repayment penalty is due. However, there is a special right of termination after 10 years in accordance with § 489 BGB. This means that after 10 years, termination is free of charge.

In general, the follow-up financing should always be cheaper than the initial financing. Hence the tip: if interest rates are set to rise in the future, the forward loan is worthwhile. To be sure, you can calculate the interest rate using the formula (current interest rate + lead time in months x interest premium per month = interest rate for the forward loan).

Loan consolidation

Loan consolidation is the merging of several existing real estate loans into a single new loan. The basic idea behind this is to reduce the monthly burden and make the administration of the financing more transparent. However, the additional costs and longer loan term are not worthwhile for everyone. Loan consolidation is usually worthwhile if you have several loans or debts with high interest rates and can pay them off with a cheaper loan.

5. question: What types of loan can I choose from for follow-up financing?

There are various types of loans that can be considered for the follow-up financing of a property. Some examples are the annuity loan, the bullet loan, the amortizing loan and the variable loan.

Annuity loan

An annuity loan is a repayment type in which the borrower pays a constant monthly installment consisting of the repayment amount and interest. The advantages are planning security and usually faster repayment.

Term loan

A bullet loan requires the borrower to repay the entire loan, including all interest, at once at the end of the term. The advantage is a fixed installment over a certain period of time, which is suitable for borrowers who will have enough money in the future. The disadvantages, however, are higher interest rates, possible difficulties in repaying the entire loan in one go and a higher risk for the lender.

Repayment loan

In short, with an amortizing loan, the borrower pays a fixed repayment plus interest each month to pay off the loan over the term. The advantage is that the loan can be repaid more quickly, while the disadvantage is that interest rates are usually higher and monthly payments can be a burden.

Variable loans

With a variable-rate loan, the interest rate can fluctuate during the term of the loan, which means less planning security for the borrower. One advantage is that they can benefit from falling interest rates, while a disadvantage is that it becomes more expensive if the reference interest rate rises and the monthly installments fluctuate.

On Immobilien-Erfahrung.de, many more questions about follow-up financing are answered in the financing guide: Follow-up financing.