Rescheduling mortgage lending: Simply save money and time!
Debt rescheduling means replacing a current loan, transferring it to a new bank and saving money through better interest rates. How this works with a mortgage, we show in this article.
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What is a debt restructuring?
“Debt rescheduling” is the replacement of an existing loan at the current bank with a new loan from another bank. You move the "fault" From creditor A to creditor B. The purpose is: By rescheduling you can get a better interest rate at the new bank and thus save many thousands of euros.
A rescheduling is possible for different types of loans, for example, you can quite easily convert a normal installment loan. However, this article is about how the rescheduling of mortgage lending works.
Unfortunately, this is not quite as simple as with a installment loan, because when it comes to mortgage lending, you are bound to your bank for a long time due to the interest rate commitment. Depending on which fixed interest rate you decided on at the beginning, you have entered into a contract for a minimum of 5 years, a maximum of maybe 30 years. The current interest rates are so attractively low that many homeowners like to get rid of their credit prematurely and make a rescheduling. But then the question is: how and when do you get out of mortgage lending out?
From when can I reschedule my mortgage lending?
One thing is certain: within the fixed interest rate, you can not normally terminate the contract and therefore not reschedule to another bank. But as always, there are exceptions to the rule, and at certain stages of your mortgage lending, you have options for action. In the table below we show you briefly and clearly which are. Then we describe the options in more detail.
|Period||course of action|
|The loan agreement has been running for more than 10 years?||You can cancel and repay at any time with a notice period of 6 months.|
|The loan agreement runs for less than ten years, but for more than five years?||At this stage, unfortunately, you have no action option.|
|Still 5 years to 12 months until expiry of fixed interest?||You still can not cancel mortgage lending, but you can take out a forward loan with which you can settle the remaining debt later.|
|Only 12 months to expire?||Now, no forward loan is possible anymore. You can still stay with the same bank and prolong (prolongation) or cancel the contract now and reschedule.|
Debt restructuring of mortgage lending: the options for action in detail
Loan agreement has been in progress for more than 10 years: rescheduling by special right of termination
Is your debit interest already running for more than 10 years? In accordance with §489 BGB, the legislator will grant you the right to terminate your mortgage lending with a notice period of 6 months from now on and to repost the remaining amount. This special termination right does not end: you can use it after 11 years, 20 years or 30 years, regardless of the day. And regardless of how much longer your fixed interest rate is still running. The main thing is that you have passed the 10-year term. How exactly this termination works, you will learn in our article about the special right of termination.
Sample letter on the special right of termination
You want to cancel your mortgage lending after 10 years? Here we offer a sample letter as a Word file for download, which you can use as a template for your own termination and customize it to your needs.
Credit runs less than ten, but more than 5 years
In fact, you do not have any options for action during this phase: you can not terminate the loan and you can not plan rescheduling early. Unfortunately, you have to wait until you have reached at least the 5-year limit.
Five years in advance possible: complete rescheduling early
With this option, you can not get out of your credit agreement a day earlier and have to wait for the interest rate to end. But: In this phase, you can already bring the new loan agreement for the rescheduling in dry shawls, because this is possible up to five years before the end of the current fixed interest rate. This has great advantages: for example, you can secure today’s interest rates for later and then no longer have to worry about your follow-up financing. Which options you have exactly depends on the exact time frame of your mortgage lending:
- 5 years to 1 year before expiry:
Your mortgage lending expires in the next five years, but will last for more than 12 months? Then you can now complete a forward loan with a new bank for the rescheduling. For this you sign today a contract for today’s interest rates, which are currently very low. The forward loan is dated so that you will not be paid out in five years. You can then replace the remaining debt of the old mortgage lending. You reserve the interest today for later. This makes sense, especially if you firmly expect interest rates to rise in the coming years. Without a forward loan, you would be exposed to the increased interest rates and would have to pay your follow-up financing at higher interest rates.
- 12 months or less before the end of the fixed interest period:
Although no forward loan is possible in this phase, there is nothing standing in the way of normal debt rescheduling. Ask the bank if it will let you out of the contract a few months earlier (for prepayment penalty). If not, please inform the bank in writing that you do not wish to continue the current mortgage loan after expiry. Do this only if you already have a loan commitment from a new bank in your pocket! Otherwise, in the worst case, you will be obliged to pay the remaining debt at the end, but you will be left empty-handed. If you do nothing at this stage, the bank will automatically notify you, at least three months before expiration, whether or not you would like to extend your real estate financing with you, and will normally offer you a prolongation offer.
What is the saving potential??
The second question, which arises when rescheduling a mortgage lending, is: how much can I save by rescheduling? Basically, you can say that the probability of getting a better interest rate by switching to another bank is very high. Keep in mind that just a few percentage points behind the decimal point can save you thousands of dollars over the years. Staying at the house bank, ie making a prolongation, is almost never worthwhile.
A first, quick insight into the saving potential gives you our rescheduling calculator. If you enter your rescheduling data here, it will show you which new conditions you can expect approximately. Compare the possible, new interest rate with your old interest rate, and you get an idea of how much the savings potential of a rescheduling can turn out:
Calculate debt restructuring yourself
Here you simply enter the date at the start of your follow-up financing and the amount of your remaining debt at this time. How much of the remainder will be due on this date, you can see from your repayment plan, which the original bank should have given you then. If you do not have a repayment plan, you can request one from your bank. In the rescheduling calculator, choose your new, desired fixed interest rate. At the end, you will be shown up-to-date example conditions for your rescheduling. Nevertheless, the rescheduling calculator gives you a good, first impression: Compare the data from the new mortgage lending with the data in your repayment plan. In this way, you recognize the potential cost savings. We can offer you an exact, tailor-made offer for rescheduling in a personal conversation.
Rule of thumb: When is the rescheduling of mortgages worthwhile
By your own calculations you see: The savings potential of debt restructuring is quite high. By the way, from when a rescheduling of mortgage lending is actually worth, there is also a rule of thumb. It is said:
If the interest rate of the new bank is at least 0.2 percentage points better than the interest rate of the old bank, it is worth rescheduling the mortgage lending.
Two examples of the savings potential
With the two following examples, the monetary advantage of a rescheduling want to clarify even more concrete. Here we start from two different starting situations:
1st case example: target group "Fixed interest expires soon" – Rollover or rescheduling?
You belong to this target group when your rate fixation expires soon (for example, in a few months). The contract with your old bank then ends automatically, without the need for termination, and usually a residual debt remains. So you are faced with the decision: Should I stay with my previous bank, or should I switch to a new bank? The current bank must tell you, at least three months before the end, whether you are willing to extend the contract with you, so that you have enough time to find a new bank, if not. Normally, the bank also offers you a new offer, because only in rare cases does it want to get rid of you as a customer. But then there is still the question: accept or change the new offer? Let us first anticipate: a change, that is a debt restructuring, is usually always cheaper. We would like to briefly show this in a case study:
- The Krüger family bought their own home in 2009 and opted for ten-year fixed-rate financing, which expires in 2019.
- It has been financing for ten years now with a monthly installment of 660 euros.
- Therefore, the residual debt has fallen steadily and is 2019, at the end of the fixed interest, at 100,000 euros.
- In time, a new offer from the old bank is in the mailbox: It offers Krüger family a new round of financing, at an interest rate of 2.32 percent for a new fixed interest rate of 15 years to 2034, the rate would remain at 660 euros.
- In the year 2034, the remaining debt would then be paid off.
Although the Krüger family rates the interest rate quite well, they compare it to other banks’ offers. Lo and behold, the rival bank offers a much lower interest rate of 1.45 percent for the same residual debt. If the Kruger family stays at a rate of 660 euros, they can repay more at the same rate due to the better interest rate and would therefore finish faster, namely as early as 2033. However, this is not the only effect that the better interest rate has, as it also saves interest costs a: In total, the Kruger family pays the competition bank 7,927 euros less interest than at the house bank. Family Krüger expires the old contract and concludes a new financing contract with the rival bank.
Grafik: Saving through debt restructuring (instead of prolongation)
2nd case study: target group "My fixed interest has been running for more than 10 years" – cancel or continue?
You belong to this target group if your fixed interest rate has been running for longer than 10 years, but it is still far from over. For example, if you had completed the first 25-year fixed rate financing in 2009, you would now have hit the 10-year limit, but the financing contract would run until 2034, which would be 15 years. The decision is also in this case: Do I stay at the house bank or do I change to a rival bank? If you want to change, you must actively quit the house bank, because by itself the contract expires in 15 years. As soon as you have passed the ten-year term since the start, you can use your special termination right in accordance with §489 despite the planned end of contract in 2028 and immediately terminate with a notice period of 6 months.
Let’s take a look at these two scenarios as a decision support with an example family:
- The Körner family completed construction financing in 2009 with a fixed interest rate of 25 years until 2034.
- Their debit interest at that time was 4.9 percent, their rate at 786 euros.
- After 10 years, so now in 2019, are still 100,000 euros remaining debt over.
- If the Körner family would simply continue the contract, it would be ready in 2034 as planned.
However, the Körner family has heard that a borrowing rate of 4.9 percent is quite high these days and that it can also be better. So she gets an offer from a rival bank and is surprised:
Here you can offer the Körner family at their own rate (786 euros) for the same remaining debt of 100,000 euros an interest rate of 1.45 percent. A huge difference! It is noticeable in two ways: Firstly, the Körner family is already ready to pay off in 2031, not just in 2034. And secondly, over time it will save interest costs of no less than $ 1 32,751 euros on. For this amount, it pays to put up with the hassle of rescheduling: Fix is the termination written and concluded the contract with the new bank.
Graphic: Saving through rescheduling by special termination
What does a debt restructuring cost??
A debt restructuring is usually not in vain. The following costs may arise:
Of course, if the old bank does not let you out of the contract, there will be no prepayment penalty. And if the old fixed interest rate expires, you also do not have to pay a prepayment penalty. However, if she agrees to a premature replacement of the real estate loan, she will always charge you a prepayment penalty. There are legal requirements. If the fixed interest rate continues to run for more than 12 months, the prepayment penalty may not exceed 1 percent of the remaining debt. If the maturity period is less than 12 months, the Bank may only charge 0.5% of the remaining debt. Assuming that you still have a remaining debt of € 100,000, the prepayment penalty would be € 1,000 in the first case and € 500 in the second case.
Land registry and notary fees
Although the new bank requires no further fees from you, except for interest on the real estate loan, the rescheduling requires that the new bank be included as a creditor in the land register and that the old one be erased from the land register. Normally, the notary and the land registry office ask for it. The change of entry can be done in two different ways: either as a transfer of land charge or as a lien cancellation and re-registration. The first way is the more usual and the cheaper, the second way is more expensive and expensive. Which way is open to you in your rescheduling depends on the bank that you leave. To quantify the difference: For a residual debt of 100,000 euros, a lien assignment costs about 300 euros, with a cancellation and new entry is about 1,000 euros. Both processes can be calculated by yourself with our land register calculator and your real data.
How complicated is a debt restructuring?
The good news is that the cost of rescheduling is actually low, and it usually happens very quickly in just a few days. Normally, the old and the new bank handle most formalities among themselves. If the releasing bank declares itself ready for a lien assignment, you have the least to do as a client, because then you do not even need a notary appointment. This is different when it comes to canceling land plots and registering new ones. Talk to your previous bank about which option it is ready for. Or, more simply, leave the negotiation with both banks to the specialists of Dr. Ing. Small.
Rule of thumb for the expense of rescheduling
At this point, we would like to give you another, interesting rule of thumb that can help you in deciding whether you want to take on the burden of debt restructuring:
If interest rates have improved since your first financing and / or your income situation has changed, it always makes sense to reschedule.
Because when you continue the old contract, you can not use these advantages, you get a lower interest rate, and the contract terms can not be adapted to the new income. However, rescheduling gives you the opportunity to design the contract to suit your new life situation.
With this principle in mind, it quickly becomes clear that you are almost always better off rescheduling than with a rollover. Because it is very likely that your life situation changes over the years and that you can get a better working interest. With a prolongation you can not use these positive developments at all.
Reorganize the contract when rescheduling
At this point, we would like to take a closer look at the flexibility of rescheduling. In the case of a prolongation, the following applies: An existing construction finance contract will be continued, not a new one. Therefore, all contract terms remain unchanged even after an extension. That means more precisely:
What was not in the contract before, will not be part of it afterwards. The only thing you can choose freely is the new fixed interest rate. But even here, the old bank usually offers only two or three different fixed interest rates, and you can usually choose between 5, 10 or 15 years. Everything else stays the same – and that may be pretty bad for you.
Because this will deprive the customer of the freedom to redefine some contract details. A debt rescheduling concludes a new contract, which, in addition to a better interest rate, opens up even more opportunities.
You can increase the repayment rate
When you convert to a new real estate loan, you can not get a better interest rate, but also change the repayment rate. What advantage does its increase have? You can repay more at the same, usual monthly rate than before and therefore pay the remaining debt faster. This will help you finish your mortgage faster and save a significant amount of interest over the years.
You can not make this adjustment during a prolongation, in which case the repayment rate remains the same. That means in practice: If he was in the first round of financing at only 1 percent per year, then it has naturally increased over time, because over time you have paid off the remaining debt through the monthly installment. With the prolongation offer, you are redeeming exactly at the point where you left off earlier – you can not set the repayment rate directly higher. And that can have a very negative effect on your financing: If you stay with the originally planned amortization process, the remaining term will not be shortened and the bank will pay interest unnecessarily.
You can lower the monthly rate
The better interest rate also gives you the opportunity to benefit from a lower monthly installment. This looks like this: you keep your old repayment installment and at the same time you pay less interest because the bank asks you less and therefore you have a lower rate. Then you repay just as fast as before, so you are not faster with the repayment of mortgage lending, but enjoy each month financial relief. This option may be worth considering if the income situation has worsened. This too is a path that is not open to you in a prolongation.
You can add special repayments to the contract
Rescheduling allows you to add extras such as annual special repayments to the contract. In case of a prolongation everything stays the same in this point too: if you had previously included 5 percent free special repayment, then this option will remain even after the prolongation. If you have not planned any special repayments before, the bank will not offer special redemptions for the next round. A rescheduling will reshuffle the cards, and you will have the option of getting these options reinstalled or changing the amount of the special repayment. This is always an advantage if your life situation has changed since completion of the initial financing: For example, if a salary increase or a bonus payment, it can be annoying if you can not use this for mortgage lending, because the contract is not or in to a limited extent.
You can add repayment rate changes to the contract
Amortization rates are always helpful when something changes in one’s own income situation, in the positive as in the negative. If, for example, unemployment leads to a temporary financial distress, a reduction in the repayment installment can temporarily reduce the monthly installment without losing the real estate loan. If a salary increase goes towards you, the repayment installment allows you to invest that benefit month by month in a higher monthly installment.
Extend the old contract at your house bank, is also valid here: If not previously scheduled in the contract, you will not be granted with the rollover. With a rescheduling on the other hand, you have the opportunity to completely redefine the contract details and to have the repayment rate change guaranteed.
You can change the payment frequency
Many property owners pay their installments to the bank on a monthly basis, but there is also the option of a quarterly payment. In some life situations, it makes sense to change the payment method. But this is only possible with a rescheduling. Because even here it says in the prolongation: If you have paid the rate before monthly, it also remains with the prolongation. With a rescheduling, you can take the opportunity and redefine the payment rhythm. Some banks even offer a small interest rate advantage if you are prepared to forego monthly payments and settle the installments on a quarterly basis.
You can combine several construction loans
The rescheduling of mortgage lending is a good opportunity to combine several parallel loan agreements into a single, low-interest loan. Unfortunately that is not that easy, because:
All old loan agreements must be removable at the same time. This means that for each individual building loan, the respective fixed interest rate must expire on the same day, the remaining debt must be due on the same day.
If this is not the case, you can finance the loan, which is due sooner, with a variable loan, in order to then summarize it with the loan, which is due later. A variable loan does not pay interest, it is removable at any time. But at this point you need a helpful mortgage specialist. Klein, who calculates for you whether it’s worth it: The variable loan comes with a much more expensive interest rate. The path to the variable loan is particularly useful if, for example, you want to combine a KfW loan, which is also due soon, with the principal loan. Only in the rarest cases do the two loans run out exactly the same time.
By the way: You can usually not replace a installment loan and combine it into a home loan, but banks usually do not participate. But there can also be exceptions to this rule. Again, ask is free.
The biggest benefits of rescheduling at a glance
- Potential savings: Rescheduling can significantly reduce interest costs.
- discharge: With a rescheduling you can lower the monthly rate and thus financially relieve each month.
- Flexibility: Special repayments, amortization rates, and the rhythm of payments can be redefined when rescheduling, and you can even consolidate multiple mortgages into one.
Required documentation for the rescheduling
Prepare well for the debt restructuring by selecting and assembling the required documents in good time. The new bank will want to check certain criteria, and for that it needs above all:
- Salary statements (usually the last 3 months)
- Floor plan, site plan (floor map), construction documents of your property
- Current land registry excerpt (not older than 12 months) of your property
Anyone who does not like to roll out the documents alone can also contact the specialists for mortgage lending by Dr. Ing. Turn small. Just bring along your folders, and our advisors will, bit by bit, put together a qualifying credit file for your debt restructuring, which they then forward to the bank of your choice. This way, you can also be sure that no important documents are missing when applying. By the way: If you do not have a current excerpt from the land register or a land register – our specialists can request both from the relevant offices and thus take you a good deal of work.
Rescheduling step by step
Check if debt restructuring is possible
First take a look at the documents of your current home loan: Here you will find the date on which your fixed interest rate expires. You need this information to plan your rescheduling. In addition, you must later pass this information to the new bank, so that they can remit the remaining debt at the end on time.
Compare offers for debt restructuring
Now it is time to explore the market situation. Look at various offers for rescheduling and pay close attention to the decimal places in the interest rate: Even a few percentage points behind the decimal point can already mean a saving of several thousand euros over the years.
Only offer advance notice, then termination
Very important: Before you cancel your current real estate financing, get a pre-commitment from the new bank. After all, on the last day of the old construction loan, you do not want to be without new financing. One thing is for sure: it would be better to conclude the new contract, then terminate the old mortgage lending.
Cancel old contract in writing
Please note the notice periods: If the mortgage lending has been running for more than ten years, you can immediately terminate the contract at any time with a notice period ending exactly six months later. In all other cases, mortgage lending automatically expires at the end of the fixed term, but you should notify the bank in advance that you do not wish to extend it afterwards.
Repay the remaining debt punctually
Normally, the old and the new bank regulate the transfer of the remaining debt and the registration of the land charge in the land register with each other. Nevertheless, good to know: As a rule, the remaining debt must be paid within two weeks after the end of the fixed interest period or notice period, otherwise the termination is considered ineffective. Be sure to notify the new bank of the transfer date.
Pay off new loan
If the loan at the old bank is replaced by the new loan, you will now pay your monthly installments to the new bank. Now the new loan will run until the end of the new fixed interest period.
Conveniently save with the rescheduling
Convenient rescheduling – that sounds like a contradiction in terms of many: The at first glance higher, bureaucratic effort often deters first. A rescheduling is not expensive, the savings potential for it all the greater. The specialists of Dr. med. Klein will take even less effort from you and also seek out cheap offers from new banks for you. Just get in touch with us and try the topic of debt restructuring – it’s worth it.
Rightly repost, take advantage of everything
As the inventor of the Forward Loan, we know how important good conditions for debt restructuring are. However, we not only pay attention to the interest rate, but choose for you financing solutions in which all other conditions are right. In order to take advantage of our consulting services, simply ask for current financing proposals from us, your local consultant will contact you immediately.
- Interest forecast – interest rates rise or fall?
- Financing plan – 10 steps to funding!
- Mortgage Loans – Effect of Rate Binding & Co.!
- Better interest rates for follow-up financing – lower rates or pay off higher?
Further topics can be found in our guide to follow-up financing
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