How does a forward loan work?
Experts recommend borrowers to deal with follow-up financing at least two years before the end of construction finance. The issue of forward loans is particularly important here because interest rates are cheap right now and you can, therefore, benefit from low costs.
However, of course, nobody can predict how the financial market will develop in the coming years. For this reason, both the lender and the borrower take risks when signing the contract. There are so many advantages of a forward loan – in any case, the advantages and disadvantages should be weighed up before you decide to do so.
The forward loan – what are the differences to the annuity loan?
If the fixed-interest period for construction financing ends in the next five years and further financing is required for the outstanding debt, it is advisable to take out a forward loan. This is a clear difference to the annuity loan, which can only be concluded one year in advance.
The forward loan, however, offers the possibility of setting low-interest rates up to five years in advance. This way, borrowers can plan long term and know exactly how much the loan will ultimately cost. The period between the conclusion of the contract and the payment is referred to as the forward period – there is no interest, but most banks still charge a small monthly fee of around 0.01 to 0.02%. The forward loan thus offers numerous advantages over the annuity loan.
How does the forward loan work in detail?
A forward loan is one of the most popular types of follow-up financing currently available on the financial market. The special thing about it is that the borrower can secure current interest rates if they are cheap – should the interest rate level then increase in the coming years, he is still protected from them.
Most banks, however, offer a maximum of three years lead time, which also makes sense. Because of course, it is difficult to predict whether interest rates will rise or fall within the next five years. It is, therefore, easier to forecast a trend over the next two to three years.
The remaining outstanding debt – which also includes possible special repayments – will be replaced or rescheduled by the forward loan. Debt restructuring takes place when the borrower changes to another bank. However, there is of course also the possibility to stay with the current bank.
It is, therefore, most sensitive to first compare different offers and then check whether the house bank or the previous lender is cheaper. If this is not the case, you should present the last lender with an inexpensive offer – with a little luck, he will offer the same interest. Borrowers must bear in mind that rescheduling to another bank still incurs additional fees, such as the processing fee and the change in the mortgage.
Fake and real forward loan – what are the differences?
With a fake forward loan, just like with a real loan, the conditions can be set for a later date. However, there is a clear difference to the right forward loan: the debit interest rate begins directly with the conclusion of the contract. This means that the lead time does not apply at all.
One advantage is that no surcharges are charged by the bank for this phase. Instead, the provision-free time is extended until the start of follow-up financing over the respective period. As a result, the annual borrowing rate on the loan would be somewhat lower.
Conclusion: A forward loan can be worthwhile for many mortgage lenders
If you inquire about follow-up financing after the expiration of a building loan, the forward loan offers a good opportunity to secure favorable interest rates for the future. However, borrowers should also inquire about alternatives, as this can sometimes save a lot of money.
In principle, all types of forwarding loans only pay off if it is foreseeable that interest rates will increase visibly in the coming years. If, on the other hand, you suspect that interest rates will continue to fall, it is better to wait a while before concluding the contract.
Especially those borrowers who prefer to repay higher than smaller amounts should take a closer look at the topic of forward loans. Fake forward loans are usually more worthwhile with a shorter lead time of a year and a half, but this always depends on the individual case. It is therefore essential to carry out a careful calculation before concluding a contract.
In order to find the cheapest offer for a suitable forward loan, it is advisable to carry out a free comparison of different banks on the Internet.
There are more and more providers, especially on the Internet, whose conditions are sometimes very different. Borrowers can take advantage of this by comparing all offers with an independent comparison calculator. Important: Even small percentages can make a considerable difference here if the loan amount is correspondingly high.