Debt rescheduling your home loan – how it works

For most home loan borrowers, there will certainly be a time when the question of the right debt rescheduling for the loan arises – a time of great uncertainty for the borrower, because on the one hand it has to be calculated when the debt rescheduling will take place worthwhile, and then the search for a new financing offer begins. It is seldom advisable to stay with the same bank – loans are often rescheduled by switching to a new bank.

Debt rescheduling

Debt rescheduling

In the case of rescheduling, additional costs or fees are payable that the borrower must bear. These include, for example, processing fees, even if many banks, as a goodwill act, and because they ultimately want to retain the new customer, do without – in any case, however, notary fees and land registry costs, which amount to approximately 0.5% of the loan amount.

The borrower who contacted the bank for debt rescheduling cannot avoid these costs, because on the one hand it is necessary that the loaned property is revalued, which is why the borrower must also provide various property documents, and on the other hand the land charge has to be added To be changed in favor of the new bank: To this end, the old land charge is either wholly or partially deleted and re-registered, or transferred to the new bank.

Loan termination

Loan termination

Termination of the loan should not be a problem if the fixed interest period has already passed. Generally, after ten years, borrowers have the right to terminate a loan with 6 months’ notice. If the contract is terminated within the fixed interest period, provided the bank agrees to this, prepayment penalty must be paid.

If you do not want to pay prepayment penalty, but at the same time are flirting with currently low interest rates, you can take out a forward loan. However, it must be the case that the fixed interest rate will end in a maximum of three years, and one must also accept an interest premium, albeit a small one, in contrast to the currently applicable interest rates.

How to Take out a Swiss loan?

A Swiss loan is basically an alternative to a conventional loan from a German bank – but it does not necessarily have to be a cheap alternative, and this option of borrowing is not necessarily possible for all applicants, firstly and secondly, it is actually a good idea.

There are basically two different types of Swiss loans: the Credit Bureau-free loan that is offered on the German market and the Swiss loan that is taken out in Switzerland.

Credit Bureau-free Swiss loan

Schufa-free Swiss loan

The Swiss loan is now one of the options for external financing that is very popular, and of course, this is mainly due to the fact that no Credit Bureau information is obtained in the course of the application and the creditworthiness check, which sometimes makes the Swiss loan accessible to people that are usually left out of credit.

However, despite or precisely because the Credit Bureau information is no longer available to check the creditworthiness, there are very precise requirements that the applicant must meet so that a loan approval can be given: this includes a maximum age of 55 or 57 years (West and East Germany), a permanent job as an employee or civil servant and a place of residence in Germany, and no debts may exist in Switzerland. This means that a person can only take out a maximum of one Swiss loan, but married couples, for example, two loans (one per spouse).

The loan amounts of Swiss loans are not particularly high and generally hardly exceed the limit of 3,500 dollars – Swiss loans are therefore rarely suitable for financing a car and, due to their limited nature, not for real estate financing, but can only be used as a top-up for ongoing real estate financing or car financing or simply viewed as a small personal loan.

Take out loans in Switzerland

Take out loans in Switzerland

The differences between a Swiss loan and a loan that you actually take out in Switzerland, i.e. directly from a Swiss bank and not through a German credit agency, could not be greater. While Swiss loans, which are known to be offered without Credit Bureau information, have very specific requirements, this does not generally apply to loans from Switzerland – for example, it is also possible for self-employed people to obtain Swiss funding.

The fundamental question is why a loan from Switzerland could make sense – the slightly lower interest rate level compared to German loans, of course, seems tempting at first. However, this advantage could be completely reversed by the existing currency risk and the constant fluctuations in exchange rates, so that borrowing in Switzerland is ultimately a loss-making transaction.

As a rule, loans in Swiss francs are not taken out for financing reasons, but rather to speculate on the exchange rate fluctuations of the currencies euro, Swiss francs, and US dollars – a form of investment that should be left to very experienced and solvent investors for reasons of reason.

Build credit cheaply: Now or never!

 

One person’s sorrow is another’s joy – there is no better way to describe the current situation on the credit market, because while many countries and citizens are suffering from a recession and hard austerity efforts by their governments, investors can look forward to low -interest loans ! Because: You won’t be able to build as cheaply as now in the next few decades and thus create real estate assets.

Historical interest rate low – also with financing

Historical interest rate low - also with financing

What makes investors and savers moan is a real reason for joy for home builders and future property owners: effective interest rates of 2.2 to 2.5% for home financing or a real estate loan with a term of up to 20 years are a historic low interest rate ! With a key interest rate of 0.75%, the interest rate can hardly fall any lower.

Even those who secure this low interest rate through fixed interest rates for the next 10 to 20 years, which means a premium of around 0.3 – 0.5% on the interest rate, can afford their own property at an effective interest rate of less than 3% , which is almost free compared to the building interest of the past of more than 6% and thus enables a quick repayment or a more spacious planned property.

No more room for interest – save anyway?

No more room for interest - save anyway?

When it comes to interest rates, there is hardly any room left for a loan or a further reduction – nevertheless, many loans still offer great savings potential, since not the interest rates, but the loan conditions fluctuate greatly from provider to provider and thus offer scope. On the one hand, it is not only due to different high fixed costs depending on the provider, such as: For example, the credit mark-up, ancillary fees / ancillary costs or processing fees, but also how expensive “special rights” such as fixed interest rates, the right to special repayments or, in the case of variable loans, the setting to the 12-month Euribor.

If you want a really cheap loan, and not just a low interest rate, you should make sure that the credit spread is below 1% of the loan amount if possible – even a small difference of 0.5% already makes it more than 100,000 dollars with financing 10 years savings of 5,000 dollars! The front-end load is often negotiable at almost all banks, unlike other credit-related factors. With premiums of more than one percent, you should change the provider!

The situation is similar with the ancillary credit costs, which can often amount to up to 4% of the loan amount due to high processing fees. However, the ancillary costs of a loan are also negotiable to a limited extent: Customers with a good credit rating can often push this down to 1% of the loan amount, even customers with a poor credit rating should not be satisfied with less than 2 %.

Although all fees and ancillary credit costs must also be included in the effective interest rate for better comparability, some of these are linked to creditworthiness, so that banks can “fine-tune” themselves here, except for a specific offer.

Small providers often cheaper

Small providers often cheaper

While regionally active banks and savings banks often perform less well in many product comparisons due to the higher costs, they can still score well in construction finance and mortgage loans and undercut large banks in some cases by up to 0.3 to 0.4% in the effective interest rate for long-term loans. There is currently still hope for stability in real estate financing, since mortgage loans are likely to remain cheap as a safe haven due to the high level of interest shown by foreign investors.

However, with smaller providers, it must be considered whether these special requirements apply to the borrower, such as the involvement of local companies – depending on the regional price level, this can make the loan more expensive if the construction and handicraft services are so expensive than expected.

Own contribution decisive!

The model of high equity financing is also reflected in the current interest rate: the higher the equity share, the lower the lending rate. They are currently unbeatably cheap Real estate loans and mortgage loans with an equity component of over 50%, which are still available between 2.70 and 2.90% with an interest rate fixation and term over 15 years. With an increasing equity share of up to 70 or 80%, however, premiums of 0.4 to 0.6% have to be expected.

However, only full financing with 0% equity is really expensive, since most banks have disappeared from the portfolio after the subprime crisis and are only offered by a few providers.

Long-term fixed interest rates are still the exception

Long-term fixed interest rates are still the exception

Unfortunately, many banks also know that customers will never get money as cheaply as they do now and therefore only offer fixed interest rates of up to 15 years – you have to search for 20 years and more! Nevertheless, it is worth it, because with an average term of 20 to 30 years, banks speculate that they will be able to make up for the current “loss” in a later, expected high interest rate phase towards the end of the loan, for example with follow-up financing that is more expensive for the customer.

Favorable credit – comparison of interest rates

Unfortunately, it is sometimes not so easy to find a loan with really low interest rates: this is because the interest rates for installment loans, small loans, personal loans, car loans etc. are generally not fixed, but depend on different factors: for example on the creditworthiness of the borrower or, more rarely, the amount of the loan.

Interest based on creditworthiness

Interest based on creditworthiness

If a bank advertises a loan with a certain interest rate, in most cases this is exemplary interest, calculated for a very good credit rating of the borrower. Interest rates dependent on creditworthiness mean that the interest rate deteriorates the more negatively the bank assesses the creditworthiness of the borrower. This can lead to the fact that a loan that initially appeared to be cheap can ultimately become far too expensive in comparison.

The creditworthiness itself is based on various factors. An important point is of course the income or the amount of the income and the type of employment, i.e. whether the borrower is an employee, official or self-employed. The self-employed sometimes find it difficult to obtain cheap loans, and civil servants and employees cut off in the eyes of the banks, or at least a sufficient amount of income and a positive budget account.

Interest is based on the loan amount

Interest is based on the loan amount

This can also be found in everyday banking: the interest rate is no longer based on the creditworthiness of the borrower, but on the loan amount. This means that the higher the loan amount requested, the higher the interest rate. This is not to be confused with the phenomenon that interest rates seem to decrease as the term is extended – for some borrowers this is an occasion to agree longer terms than necessary, which is of course a dangerous decision: longer terms mean even with possibly lower interest rates increased total cost to the borrower.

It is important to use a loan calculator to compare interest rates, which firstly uses the current figures for the respective offers and secondly includes the factors of creditworthiness and, if applicable, the amount of the loan. By the way, it is more difficult to compare loans in the case of construction finance or real estate finance – there are even more factors and opportunities for individual design. Key points would be, for example, special repayment rights, fixed interest rates, estimated costs, etc.