How to cancel your home loan early
Redeeming a home loan early means transferring it to another bank . This loan redemption must be commissioned by the borrower. This is done by placing an order with his previous bank and naming it the new bank that will take on the house loan.
Getting the home loan repaid early involves costs for the borrower. Home loans for which a variable interest rate has been agreed are excluded from the prepayment penalty.
Repaying mortgage loans at the bank are numerous and range from selling the house to over-indebtedness and striving to reschedule.
Better conditions with another bank
A fixed interest rate is common for real estate loans. Since interest rates have been very minimized, particularly in today’s world, but still vary from bank to bank, debt restructuring or redemption is usually advisable.
Older loan contracts often have a fairly high interest rate. If the lending bank does not agree to rescheduling at lower interest rates, the termination of the loan agreement or a change of bank would be worth considering.
As a rule, the credit institutes meet the wishes of their borrowers because they are reluctant to lose their often long-standing customers to the competition.
Inheritance or sudden improvement in financial condition
If you are in the lucky position that your financial situation will suddenly improve from one day to the next through inheritance or the like, you can also repay the existing loan at once.
For this, however, the bank claims prepayment penalty. The exception to the rule are contracts in which a fixed interest period of ten years has been set.
Only after this period has expired can the borrower terminate the loan without paying any compensation to the bank. This also applies to contracts with a total term of 15 years.
- Only in cases where the fixed interest rate exceeds a period of ten years can the loan be terminated after a period of six months after the end of the first ten years without being able to demand prepayment penalty.
Repaying mortgage loans at the bank are numerous and range from selling the house to over-indebtedness and striving to reschedule.
Unfortunately, the bank has to pay a prepayment penalty if the mortgage loan is repaid, as mentioned above. In plain language, this means that the bank can invoice borrowers for the lost interest.
However, how exactly the prepayment penalty should be calculated, this always led to disagreements, which ended up as a lawsuit in court for clarification.
- It was not until 1997 that the Federal Court of Justice passed a fundamental judgment regulating the prepayment penalty. Up to this point, each bank was able to use its own formula for calculating the prepayment penalty. For customers it was usually not understandable how exactly the prepayment penalty was calculated. However, since 1997 banks have had to adhere to a uniform calculation. Even today, detailed questions are often clarified on the legal route.
If you have a prepayment penalty in the room, then you are entitled to a calculation that is not only detailed, but that you can also understand. It is also advisable to have the calculation checked by a third party.