Fundamentally, there is also the possibility of debt rescheduling for mortgage lending. As with other loans, rescheduling takes place by replacing the old loan and converting it into a new loan at generally better contractual terms. The new loan can be requested and taken up from the previous lender, but also from another mortgage lender.
If the borrower decides to reschedule existing mortgage liabilities at his previous bank, the loan will be reorganized on the basis of the previously concluded loan agreement. This contract will be adjusted to the new terms of the new loan. It is therefore not necessary to conclude another contract.
If, on the other hand, the borrower takes out debt rescheduling from another bank, the old loan agreement must be terminated and a new agreement concluded with the second mortgage lender. When terminating the old contract, the borrower must carefully observe the respective termination agreements in the credit contract terms.
Debt restructuring options in mortgage lending
Debt restructuring of existing real estate loans is possible in the following three forms
- Forward loan (advance loan)
- New loan during an ongoing fixed interest period
- New loan as follow-up financing after a fixed interest period
The forward loan offers real estate borrowers the opportunity to freeze the current loan conditions for the next round of financing before the interest rate lock expires. With the forward loan, the borrower thus secures favorable loan interest rates in advance and permanently for the period after the fixed interest rate.
A mortgage rescheduling can also take place during the contractually agreed fixed-term term if there is an increased need for financing. However, this is usually associated with financial losses for the borrower.
Finally, debt rescheduling is also possible after the fixed interest period, if the conditions for the debt rescheduling loan should be more advantageous than a loan extension of the current real estate loan.
Right time to reschedule
Ten-year fixed interest period
The rescheduling of a real estate loan only makes economic sense if the expected benefits outweigh the costs associated with mortgage rescheduling. This will almost always only be the case after at least ten years of fixed interest rates.
If a borrower exercises his right of termination before ten years have expired, lenders will ask for early repayment compensation for the loss of interest. It does not have to be paid by the borrower after ten years of fixed interest rates, because then he is legally entitled to an ordinary right to terminate the loan agreement without being obliged to pay a prepayment penalty (§ 489 BGB).
Impending prepayment penalty – note the fixed interest period
A debt rescheduling of mortgage lending before at least ten years of fixed interest rates is associated with considerable financial disadvantages for borrowers , because the prepayment penalties are considerable and can easily amount to a five-digit amount in the case of higher loan amounts. Even if the debt rescheduling loan offered significantly more favorable interest rates, the financial damage suffered by paying the prepayment penalty would hardly be able to compensate for this.
A mortgage rescheduling is only economically expedient if it has been contractually agreed as a forward loan in advance, or if the borrower has the legal opportunity to terminate without paying a prepayment penalty for the first time after a ten-year loan term.
Advantages and benefits of mortgage rescheduling
Calculate interest savings and rescheduling costs
A debt rescheduling should be considered when the rate lock expires and the debt rescheduling loan offers better terms than the current loan. Under these conditions, the borrower can realize interest rate advantages. But that also does not always apply, but only if the expected interest savings on loans exceed the debt rescheduling costs.
Therefore, even if the general interest rate level has given way and a debt rescheduling loan could be taken out at more favorable interest rates after the rate fixation has expired, the borrower has to calculate precisely whether the savings will not be used up again by the costs that arise as a result of the debt rescheduling. For this, corresponding processing fees apply to banks. Processing fees are not only charged for the new loan, but are also charged by the previous bank for the termination of the contractual relationship when the old contract is terminated.
Explore possibilities at the house bank
At least contract termination costs do not apply if the borrower stays with his previous mortgage lender and either requests an extension of the existing loan or rescheduled the mortgage.
Before changing providers, it is therefore always a good idea to examine in detail all the options that are available to the current lender. The borrower should act self-confidently and also point out to his house bank about cheaper market offers. If the bank refuses to grant the borrower similar contractual terms, the provider should be changed and the debt rescheduled at another bank.
But because it is ultimately the banks that earn money from borrowers, they often accept such customer suggestions. The bottom line is that the borrower then saved the contract termination costs while at the same time making use of more advantageous interest rates.
Disadvantages of mortgage rescheduling
Due to the payment of a prepayment penalty, rescheduling within the fixed interest period always means a loss-making transaction for the borrower. A debt rescheduling outside the fixed interest rate is generally cheaper at the previous bank than taking out new loans at another bank, because the house bank usually only incurs the processing fees for the corresponding contract change.
If the borrower opts for a new mortgage lender, he not only has to bear the costs for the termination of the old contract. In addition, he is charged with the costs of processing the new loan application. The change can be particularly expensive if the loan approval from the new bank is made dependent on taking out residual debt insurance .
The residual debt insurance always leads to a considerable increase in credit, which is why the borrower should calculate the economic viability of the switch with particular care under such conditions.