Fixed interest rate period and real estate financing: Which topics are important for construction financing?

Although the low-interest phase has weakened in recent months, financing a home remains favorable for borrowers. In this context, the role of a real estate agency is not only to broker the property, but also to advise on which construction financing is optimal. Various aspects play a role here, such as the amount of the respective monthly installment, which should be calculated based on income circumstances in such a way that there is no risk of over-indebtedness.

The fixed-interest period is important in order to be able to calculate how long the borrower can expect which payment burden. Likewise, topics such as remaining debt, unscheduled repayments, commitment periods, or follow-up financing should be discussed to create a certain degree of planning security.

What is meant by fixed interest rate period

Anyone thinking about buying a property will inevitably come across the term fixed interest rate period. Most future property owners will not be able to finance at least a part of it from their own funds and will opt for a favorable construction loan. The financial service provider should therefore provide good information about granting a loan and the fix the nominal interest rate for a period, which is particularly interesting during the low-interest-rate phase.

Because During the fixed-interest period, the interest rate remains unchanged. and financing with a long fixed-interest period is therefore very attractive. It is recommended to choose a shorter fixed-interest period of about 5 to 10 years only when interest rates are particularly high. Of course, a long interest rate lock-in period offers better predictability.

Is an early redemption of my construction financing possible before the fixed-interest period expires?

A lender is not per se obligated to allow a loan agreement to be terminated before the end of the agreed fixed-interest period. However, the bank may agree if at least 6 months have passed since the receipt of the loan. The lender now has the right to, Prepayment penalty to demand. If you want to pay off a construction loan early, for example because of another favorable loan, it is worth weighing the interest savings against the prepayment penalties. Some banks are also willing to agree to a Comparison to let in.

Is a restructuring of the construction financing possible during the fixed-interest period?

The situation is similar with debt restructuring, which can take place under certain conditions despite a fixed-borrowing-rate period. However, a complete cancellation or payoff is generally not intended by the bank and in this case would also result in a prepayment penalty. If the fixed-interest period is set for less than 10 years, refinancing the construction financing is not possible. For longer periods, one can reach an agreement with the bank regarding debt restructuring.

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What happens if there is no follow-up financing at the end of the fixed-interest period?

Construction loans are often financed in such a way that at the end of the fixed-interest period, a residual debt remains, which is covered by a Refinancing must continue to be serviced. You then have the option to extend the loan or carry out a complete debt restructuring. About 3 years before the real estate loan expires, you should get advice on how it after the fixed-interest period continues. A forward loan as an alternative can even be concluded up to five years in advance.

What advantages this type of loan has will be addressed in the further part. The prolongation, i.e., the extension of the loan with the same provider, involves a renegotiation of the terms, namely the interest rate and the fixed-interest period. However, it is also always worthwhile to get a Offer from another bank to have quotes provided in order to potentially benefit from a better interest rate and negotiate more favorable terms.

Is a forward loan or a home savings loan (Bausparvertrag) better suited for refinancing?

The option to secure a good interest rate for upcoming follow-up financing even before the fixed-interest period expires can be found with a forward loan. It is worthwhile when it can be foreseen that the interest rate will rise in the near future, but the option to redeem the loan is not yet available. Because with the forward loan you secure such favorable interest rates and fix the interest rate over the so-called forward period, which can last between a few months and five years. The biggest advantage here is certainly the planning reliability and the savings potential. However, the disadvantage is that the longer the forward period lasts, the higher the interest rate surcharge with which the bank hedges itself will also be..
A building society loan is also an option for follow-up financing. If you plan far enough in advance, up to 15 years, you can save up and count on the locked-in interest rates. While the borrower is obligated to accept the concluded forward loan when the contract is ultimately ready for allocation, a building society loan gives you the option to decide when or even if you want to use it. It is important to note the exact time when the remaining loan amount for the follow-up financing is due, because the money—whether through a forward loan or a building society loan—must be available at that time.

So, if a construction loan is coming up, you should comprehensively advised by your credit institution leave. Learn how best to mitigate interest rate risk and what special repayments are possible. This may enable you to pay off your mortgage faster. It is also important which loan installment suits you and what options can be offered to you based on the current interest rate level.

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