If a borrower takes on a high loan amount, it can often not be repaid in the period of the agreed fixed interest rate. At the end of this fixed rate, the borrower is faced with the question of whether the loan will continue at a new bank or remain with the old bank. An additional consideration could be follow-up financing.
Do not rely on your bank offering you the cheapest financing. If you deal with the rescheduling of your loan in good time, it can pay off in cash.
The Internet can help to find a suitable and cheap follow-up financing.
The forward loan
The forward loan is the best example of how it is worth planning in the long term. Already up to 5 years before expiry of the fixed interest period, the borrower can secure a forward loan. In the case of a forward loan, the current interest rates are also taken over for the follow-up loan after the interest rate commitment. Specifically, if the credit market suggests rising interest rates, it may make sense to set this type of follow-up financing in a timely manner.
The loan amount in this case is exactly the amount that remains with the old loan as a residual debt. Even if the forward loan is completed years before the old loan expires, the loan amount is not paid directly. Once the original loan has expired, the new bank transfers the outstanding balance to the old bank (the borrower never has the money in his hands). From then on, the borrower pays the installments due to the new bank.
However, there are still costs for the forward loan, which must be taken into account. For the continuation of the old interest rates, the new bank can pay a certain lump sum. Per month, the borrower promises the forward loan in advance, suggests the Bank between 0.01 and 0.03 percent.
Borrower concludes forward loan 3 years in advance. Receives a fixed interest rate of 10 years and freezes for this period, the previous interest rate of 4.95 percent. Now 0.01 percent per month in advance. At 3 years this is 36 months, which is a surcharge of 0.36 percent. The resulting interest rate is 5.31 percent.
Currently very favorable situation
Due to the current inverse interest rate, forward loans are even much cheaper. There are always offers for forward loans, without any extra charge. Anyone who finds such an offer can secure a current interest rate, long into the future. If one assumes the maximum 5 years until the interest rate lock expires and then calculates another 10 years fixed interest rate, one knows his interest rate for the next 15 years.
The forward loan is also a follow-up financing with certain risks. If interest rates do not rise in the future, the borrower has made a 0 business or if interest rates even fall a minus business. Since it is difficult to predict interest rates over years, the forward loan is always a kind of lottery. Of course you have good chances when you are in an absolute low-interest phase. Because if the interest rates are historically low, the risk of a further drop in interest rates is very small.
Of course, the forward loan also has to be taken out when interest rates have fallen significantly.