Forward loans can be worthwhile in many situations. An important principle applies here: Under no circumstances should a corresponding loan contract be signed while interest rates are at a high. Because then it can be assumed that these will fall again in the foreseeable future, which would make the loan significantly cheaper.
However, if interest rates are at a low, forward loan are clearly recommended. In this case, it is worthwhile to implement follow-up financing for his expiring real estate financing.
Taking advantage of low-interest rates on cheap forward loans is worthwhile
With the help of a forward loan, in the best case, a cheap real estate loan can be secured for the coming years – at the current conditions, provided they are cheap. At the present time, building rates are at an almost historical low: until a few years ago, building rates were around 5%. Today it is significantly less and therefore all the more profitable to opt for a forward loan.
Nevertheless, interested parties should act quickly, because the cheap building rates will certainly not last forever – the maximum low will eventually be reached. Even more: Financial experts assume that interest rates will turn around in the foreseeable future and that lending rates will then rise again. Some banks are already showing upward trends again, but of course at the current time it cannot be predicted with certainty how interest rates will develop in the coming years.
The currently particularly low interest rates for the construction money and for a forward loan should therefore be reason enough to decide in good time for this form of follow-up financing. As a building owner, you don’t take any risks – and you can protect yourself well against any rising interest rates when financing.
Why timely taking out a forward loan is worthwhile
In principle, forward loans can be taken out up to five years before a current loan expires. So if you know that the current borrowing rate for the ongoing financing will expire in the next five years, it is worthwhile for you to deal with the topic of forward loans now. After the contract has been signed but the payment has not yet been made, the so-called forward period begins.
Most banks incur additional costs for this – the forward surcharge – which, however, is within the range of around 0.01% per month. It should still be included in the calculation, which is particularly important when comparing different banks. There are even credit institutions that completely do without this surcharge in a very short period of less than 12 months. In some cases, customers can also use special promotions that allow a forward period of up to five years without additional effort.
If interest rates continue to rise during the forward period before payment is made, the forward loan is definitely worth it. The lender does not have to be the house bank or the previous credit bank, other providers can also offer cheap loans. The easiest way is a comparison over the Internet to compare different conditions.
When construction finance is tight, security is all the more important
Taking out a forward loan always requires careful planning. Nevertheless, it cannot be denied that there are numerous advantages to it – and that is, above all, safety. If you know in advance what costs the loan will cost you, your conscience is also calmed and you can plan your finances reliably.
Forward loans are highly recommended, especially when financing is tight. If your own income is currently just enough to make the monthly repayment, it is better to hedge against rising interest rates in this way. Because if the interest rate level actually increases, you are left behind – and possibly serious financial difficulties. If you are currently paying off an older loan with high interest rates, then the forward loan pays off one way or the other.
More than cheap follow-up financing: This is how borrowers benefit from a forward loan
A forward loan does not necessarily have to be used for follow-up financing, but can also serve as a cheaper debt rescheduling. Anyone who as a borrower had previously agreed on long debit interest rates for their mortgage lending can rely on the special right of termination after a term of ten years – this is even required by law.
That means: 10 years after the loan has been paid in full, the current mortgage can be terminated without the bank being able to demand early repayment. On this basis, you can immediately search for a cheap forward loan, because money can be saved in any case.
What should you watch out for when taking out a forward loan?
Of course, not just any loan offer should be chosen, but first a detailed comparison of different providers should be carried out. In the meantime, the selection of banks that offer forward loans on attractive terms is huge. It is therefore all the more important for borrowers to know which criteria are important. In addition to the interest rate, the most important aspects also include the fixed interest rate and the so-called non-purchase compensation.
The importance of the lowest possible interest rate goes without saying: It indicates how high the costs of the loan are. Even small differences in a percentage can make a difference of several thousand euros with a correspondingly high loan amount – so this should not be underestimated.
However, at least as important is the fixed interest rate, which is responsible for the security of the loan. Of course, it can never be ruled out that interest rates could rise drastically again in the coming years. Once you have decided to keep interest rates as short as possible, expensive refinancing can result, which in turn means higher interest rates and higher costs. A crucial tip when comparing several banks is therefore to always compare the interest rates on loans with the same term in order not to falsify the result.
The so-called non-purchase compensation then comes into play if, contrary to expectations, interest rates nevertheless fall. If it is small, the borrower can simply pay the costs and then take out a cheaper loan from another bank.
Depending on the bank’s own requirements, other factors can of course influence the decision for or against a provider. This could be, for example, the on-site service, the accessibility or the business hours of a bank.
What are the risks of taking out a forward loan?
Although there is currently little evidence that the conclusion of a forward loan could be a mistake, borrowers should know that if the time of borrowing was actually unfavorable, the loan cannot be canceled easily.
If the bank nevertheless relies on this, appropriate compensation must be expected, which is based on the current interest rate level. For this reason, the decision for or against a forward loan should always be carefully considered.