German Mortgage

Refinancing Your Mortgage in Germany

This article explains the various options for early refinancing and provides information on what measures you can take and when.

 

When it comes to mortgage financing, you commit yourself to your bank for a long time right from the start by fixing the interest for a certain duration. Depending on the fixed interest duration you decided on at the beginning, you will have a contract for a minimum of 5 years and a maximum of perhaps even 30 years. It is important to know that you can only cancel a mortgage contract with a good reason: divorce, house sale, or professional move, for example. Even in these cases, the bank will charge you with an early repayment penalty.


However, there are still opportunities to benefit from the extremely low-interest-rate level.

 

Current interest rates are so attractively low that many homeowners would like to get rid of their loan early and restructure their debts. By refinancing the debt you can get a better interest rate with a new bank and potentially save many thousands of Euros.

 

How high are the savings potential?

The probability that you will get a better interest rate by switching to another bank is very high. Keep in mind that even a few percentage points behind the decimal point can mean savings of several thousand Euros over the years. A prolongation with your house bank is almost never worth it. As you have already paid off part of your mortgage, the loan to value ratio (LTV), i.e. the value of the loan compared to the value of your house, has already decreased. This allows you to borrow at a more favourable interest rate.

 

Remember that the value of your property may have increased, which will further reduce the loan-to-value ratio and thus your future interest rate.

 

RULE OF THUMB:

A debt rescheduling is worthwhile if the interest rate of the new loan is 0.2 percentage points better than the old one.

 

Are you eligible to refinance your mortgage?

If you have already completed 5 years of your current mortgage you are eligible to apply for refinancing for a refinancing.

 

Depending on the period of your mortgage LoanLink can support you to: 

  • refinance with a new lender
  • prolonge with your current lender
  • receive a forward mortgage with any lender

 

The table below shows you which action you can take in different periods of time.

Have a look into the table to find out if you’re eligible to apply for refinancing. 

 

Period Scope for action
The credit agreement has been running for more than 10 years? You can terminate and refinance your mortgage at any time with a notice period of 6 months.
Only 12 months left until the fixed interest rate expires? You can either stay with the same bank and extend the loan (rollover) or terminate the contract now and carry out a debt restructuring.
Your mortgage will expire in the next five years, but will still last longer than 12 months?  You still cannot terminate the mortgage, but you can take out a forward loan to pay off the remaining debt later.

 

Your credit agreement has been running for more than 10 years?

You are eligible to take advantage of the low-interest rates by cancelling your old mortgage! Based on §489 BGB you are eligible to cancel your mortgage contract and switch to a different lender at any time after 10 years. You can start to refinance the remaining amount with a notice period of 6 months. This special right of termination does not end, which means you can still use it after 11 years, 20 years or 30 years, on any day. And also regardless of how much longer your fixed interest period continues.

 

Only 12 months left (or less) until the fixed interest rate expires?

Your fixed-interest period is about to expire, the contract with your old bank will end automatically and there will normally be an outstanding balance remaining.  The previous bank must inform you at least three months before the end of the contract if it is willing to extend it so that if not, you have enough time to find a new bank. Usually, the bank will also make you a new offer. Only in rare cases a bank doesn’t want to continue the mortgage for different reasons. 

 

You can check with your current bank to see whether they will let you out of the contract a few months earlier (against an early repayment penalty). If not, nevertheless inform the bank in writing that you do not wish to continue the current property loan after the end of the fixed term. However, only do this if you already have a loan commitment from a new bank in your pocket! Our mortgage experts can help you to find the best offers. Please feel free to get in touch with us to get a better understanding of your savings potential by signing up here

 

Your fixed term will end within the next five years, but will still last longer than 12 months? 

You may now take out a forward loan with a new bank for debt restructuring to secure the current interest rates for later. To do this, you will sign a contract today at the current interest rates. The term loan will be dated so that it covers the remaining debt when your current mortgage expires. This way, you can reserve the current interest rates for later. This is particularly useful if you expect interest rates to rise in the coming years. Without a forward loan, you would be at the mercy of higher interest rates and would have to finance your follow-up financing at higher rates.

 

Please feel free to get in touch with our mortgage experts to get a better understanding of your savings potential by signing up here

 

How does the refinancing process work?

  • Sign up on LoanLink to explain to us more about your refinancing project and your current mortgage
  • Schedule a call in your dashboard to receive your personalized offers
  • Upload your documents and let us take care of the rest

 

Which documents do I need?

In general, you can expect to prepare the same documents you’ve needed when initially applying for your mortgage, possibly even less. You will receive your personalized document list in your document section after you’ve signed up on LoanLink.

 

What interest rates can I expect?

This really depends on how much your property is currently worth in comparison to the outstanding balance (loan-to-value ratio). The lower this ratio is, the lower your interest rate will be. As interest rates can vary on a daily basis and even regionally it would be best to reach out to us and ask for your personalized quote.

 

Source

https://www.drklein.de/umschuldung.html#c17940

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