If you take out a building loan from a bank, the conditions and the interest rate are only agreed for a certain period of time, which takes an average of 5-20 years. But until you are finished with the repayment, the loan term can also reach up to 35 years. When the fixed interest period ends, a residual debt usually remains, which of course should also be repaid. For this, a borrower needs the final financing.
Three forms of final funding
There are a total of 3 ways to pay off the remaining debt with the final financing, and a distinction is made between prolongation, debt restructuring and forward loans.
- Prolongation. When the fixed interest period comes to an end, your lending bank must automatically inform you about this three months before the expiry and make an offer for final financing. If the offer and the conditions of the previous bank suit you, stay with this provider to finance the remaining debt.
- Debt restructuring. If you have obtained the offer for final financing from your house bank and decided to use a different bank after comparing it with other providers, your current remaining debt will be financed through a new bank. In other words, you get a loan from a new bank equal to the remaining debt, pay your old debt, and then pay back a new loan to the new bank.
- Forward loans. Is used as final financing with long-term planning beforehand. The peculiarity of this loan is that the borrower takes out a new follow-up loan with favorable interest rates 5 years before the end of the fixed interest period. With this forward loan, the interest rate is "frozen" until the end of the current rate fixation, and the amount is only paid out at the expiry date. This will secure the favorable interest rates for the future and the loan amount will be the amount of the remaining debt to be repaid. Don't forget that with a forward loan, providers usually charge a premium (0.01-0.03%) to “freeze” interest at a certain level.
Examine new conditions carefully
At the end of the fixed interest period, the terms of the final financing are agreed again. The conclusion of the final financing can give the borrower good chances to renegotiate the interest rate, monthly installments, repayment process and term, and even to benefit from it. As a rule, interest rates have mostly changed after the long fixed interest period, and you can now choose the cheapest rates by comparing offers.
The remaining credit terms can also be improved, for example, with regard to the monthly installment. If you have previously had problems with monthly payments, you can have them re-scheduled so that you can better control your income-expenditure situation.
Conclusion: To save as much money as possible, plan the final financing of your real estate loan early. The sooner you start to inquire about the best terms and interest rates for the final financing, the more you will benefit from it.