Special repayments and alternatives
Financing a property always requires great attention and sufficient knowledge. Real estate owners must be careful, especially with regard to special repayment. The following is a summary of the key facts to avoid wrong decisions when realizing the dream house.
If you want to terminate your Mortgage Loan prematurely, for example because the property is to be sold, then you can This project will be quite expensive. Interest rates are at a record low, banks still receive more for loans in progress than for new mortgage loans. Accordingly, the bank requires a prepayment penalty. According to the consumer center Baden-Württemberg, the bank expects in many cases wrong. A total of 224 situations were evaluated. The result: in 82 percent of all cases, the compensation required by the bank exceeded the amount calculated by the Consumer Center. Differences of up to three times have been found within an institution.
Possibilities and Benefits of Special Repayment
Special Repayment means a premature unscheduled payment, which is part of the credit agreement. As a rule, borrowers only have a right to make a special payment in rare exceptional cases. This applies, for example, to building society loans at building societies. Nevertheless, many credit providers grant their customers the right to a special payment. However, this is often limited in height. The following limits are customary in practice:
- Special interest payments may not exceed 25 percent of the loan amount,
- the annual special payment may not exceed five to ten percent of the loan amount.
Target of a special payment is to cut the monthly or repayment period. In practice, this goal is unfortunately rather optimistic. Because the contract design of the providers rarely allows such an optimistic case. The granting of the right to a special payment is usually associated with an increased interest rate, which may increase by about 0.1 percent depending on the provider. At first glance, this does not seem to be much; within a few years even such a small increase will lead to additional costs of many thousands of euros.
It has been proven that special payments seldom lead to noteworthy savings. For this reason, it is recommended to compare the bids exactly and voluntarily waive a special repayment.
As previously mentioned, special repayments on mortgage are associated with higher interest rates. For this reason, it is advisable to completely waive the right to settle the loan. If a sum of money is still available during the repayment period, it can be invested in another way. In the type of investment should be taken to ensure that it depends on the remaining duration of the interest rate. Ideal for such cases are money market accounts : They offer attractive interest rates, the money is available daily and can be transferred to any provider if required, which is also known as overnight money hopping. The money is also secured in Germany and many other countries up to 100,000 euros. For longer periods, time deposit accounts are also interesting.
Calculations by various institutions have shown that interest income in these investment forms almost always exceeds interest savings compared to special repayment. Financing without a special payment is thus in most cases the best choice.
Another possibility of the special payment for borrowers is enshrined in German law. Ten years after the expiry of the contract, a borrower can, on the basis of § 609a BGB, even with an existing fixed interest rate of Special right benefit. Here only a period of six months must be adhered to. Subsequently, the existing capital investments can be used to repay the loan in full or in part.
In special cases, borrowers know at the conclusion of the contract that they will in future be entitled to special repayment. This is the case, for example, if the borrower receives a benefit from an insurance company, sells securities or has invested his money in a time deposit or overnight money account. In such exceptional cases, real estate financing can be useful via two loans or via two investors.
The first financing has the widest possible interest retention without special repayment right and is combined with a second contract. The second contract may be a financing with an included special payment right.
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