Anyone who acquires a home and takes out a loan from the bank, should include in his planning far more factors than just interest rate, monthly installment and term. Especially today’s uncertain time requires a lot of flexibility, because working conditions and partnerships change faster. Therefore, if you move into a credit-financed property, you must be able to get out again.
If a mortgage is to be repaid prematurely, the borrower often encounters difficulties that he has never planned. This applies in particular if the property is not sold and no collateral agreements have been made with the bank in the event of early repayment. Banks often refuse early repayment even if a rebate is offered by the borrower.
Credit institutions are in principle not interested in terminating a loan agreement early. Unless an early repayment without compensation is required, great negotiating skills are required. The repayment of the loan is usually made with assets such as life insurance or time deposit accounts. If financing and assets are held by a bank, the borrower can easily calculate the smallest claim of the bank: the compensation for the early termination of the loan is based on the classic indemnity f Dasr the loan and the margin of the bank from the investment products together. Therefore, the early repayment often becomes much more expensive, as owners suspect.
Taking out mortgage financing
Therefore, when taking out mortgage financing, it is essential to include an exit strategy that makes it possible to exit financing before the end of the term. The possibility of regular smaller special payments is not enough. It must be explicitly agreed with the bank that a full repayment is possible at any time even if the loan has a fixed interest rate. The annual percentage rate of such agreements is higher – that is the price for the flexibility. The amount of the interest surcharge is based on the precautionary compensation agreed in the case of early termination. Transparency is important here: the compensation should be determined by looking at the interest rates of fixed income securities at the time of cancellation and simple discounting.
The interest premium can quickly pay off. Only those who are able to get out of a financing quickly and without much back and forth with the bank can also react appropriately to changes in their financial or personal circumstances.