Construction loans are usually granted on a long-term basis. This has the advantage for borrowers that they have no interest rate risk for a long time, usually over 5-15 years and thus enjoy planning security, on the other hand, the loan is during the term but also not cancellable. An agreed right of termination does not exist until the expiry of 10 years, the period for termination is six months. If a loan agreement was concluded with a relatively high interest rate, be it due to a high interest rate level, or due to carelessness, borrowers have hardly any options of being able to reschedule the building loan early, because the bank must grant the request on the customer not comply. Cancellation is even impossible, especially if credits were used at building banks.
Granted on a long-term basis
However, many business banks are accommodating and accept the termination of existing loan contracts. However, this is not for self-interest, because the customer has to pay the damage the bank suffers. This fee is called the prepayment fee. It is calculated from the loan amount that is to be repaid early, from the interest on the loan contract and from the current interest level. The greater the difference here, the higher the prepayment fee, because the bank can only issue the loan again on lower terms when interest rates have dropped. Sometimes the prepayment fees can be a few hundred, if not a thousand USD.
Initially charge this fee without obligation
Upon request, the banks will initially charge this fee without obligation. Borrowers can usually find alternative construction loans, the construction loan conditions of which are more favorable, on the Internet. However, it should be noted here that no advisory service is offered, so the customer has to take care of the compilation of his documents and the loan application himself. Often, the building loan conditions here are approx. 0.5-1.0% pa below the conditions of the local banks, which makes the effort well worthwhile. Furthermore, when rescheduling, the costs incurred must also be taken into account, which in turn can reduce the savings. For example, processing or valuation fees have to be paid for the new loan, and the land charge in the land register must also be changed. The borrower bears the costs for this alone.
Offset against the costs of the prepayment fee and the other fees
If a cheaper building loan has been found, the savings achieved must now be offset against the costs of the prepayment fee and the other fees. Only a positive amount makes debt restructuring really useful. Since interest rates in Germany have been at a rather low level for a number of years, debt restructuring or building loans will hardly make sense because of the costs involved. It is better to secure the currently low interest rates of the banks, which will probably decrease further in the course of the year due to the stagnating economy in Europe and the USA, in the form of a forward loan. Such loans can be taken out up to 36 months before the previous loan expires, and no prepayment fees need to be paid for this debt rescheduling. Only the description of the land charge is necessary.