Financing tips for your property – follow-up financing & debt restructuring

Debt restructuring is a good way for borrowers to approach follow-up financing. This is also supported by banks as the risk to them is lower with a debt restructuring than taking on a new debt. There is a lot to consider when it comes to financing and especially inexperienced borrowers in the field should do a lot of research on the topic of financing, follow-on loans and rescheduling in order to be prepared for all eventualities and to be familiar with the subject matter.

6 tips for your follow-up loan & your debt restructuring

Statistically, especially in the first few years after taking the loan, the chances are higher that the borrower will not be able to pay the debt. This is particularly due to poor planning of the financing. For banks, this means that the risk of default is enormously high during this period. To help you find the right financing for you and make sure the follow-up loan goes well, here are 6 tips to keep in mind. For more information, check out our 9 tips on construction loans!

Tip 1 – reliable borrowers have advantages at the bank

When financing, it is important that you prove to your bank that you are a future borrower. For borrowers who have already proven for several years that they are able to service the loan according to the contract, banks are happy to offer better conditions. At the beginning of a loan, the monthly installment is usually a large part of interest and only in the course of time, the share of repayment is larger. In a debt restructuring is therefore usually a part of the loan already repaid. For the banks this means that the loan-to-value ratio is lower than with an initial loan and also the consultation effort is lower, because the customers already know how a financing runs and what is expected of them. The bank therefore has less work to do with the customer and therefore the preparation of the offer is easier and takes less time.

Tip 2 – Processing fees for personal loans are inadmissible

Since a court ruling by the Federal Court of Justice in 2014, it has been illegal for banks to charge processing fees for personal loans. Previously, these were charged especially for installment and car loans, but also for financing real estate. This fee was charged by the bank so that it could check the creditworthiness of the customer. But since this is a matter that is solely in the interest of the bank, these costs may no longer be charged at the expense of customers. The good thing is that you can still recover the fees today. These were usually 1-4 percent of the loan amount, which can be quite a substantial amount. All the fees that you paid less than ten years ago can be paid back. It is only important that you become active yourself, as the banks do not make any objections so far to pay back the money voluntarily.

Tip 3 – find the right follow-up financing

So the banks have good reasons to woo debt reschedulers, as you can gain advantages from it. But also for the borrowers a debt restructuring is often more favorable. Depending on the financial market situation, interest rates can be so favourable that it is more worthwhile for you to reschedule an old loan than to continue paying it off at the old conditions. Today, the interest rates are often better than at the time you took out the financing. So if it can be assumed that interest rates will rise in the future, it is quite advisable to choose a long fixed interest rate and to secure good interest rates. Thus, you achieve a rapid adjustment of interest rates in the event of early termination of the old loan.

If you want to do everything right, start thinking today about how they will approach rescheduling your loan in a few years to secure good follow-up financing. These are even more worthwhile doubly if providers take over the costs of the debt rescheduling for the borrower.

Tip 4 – Debt restructuring with a forward loan

Forward loans are a good idea for all those who like to plan ahead with security. If current conditions including low interest rates are optimal for the borrower and the current loan still runs for a few years, it is worthwhile to conclude a so-called forward loan. With this you secure today your follow-up financing for the end of your term. Inform yourself about favorable conditions, which may no longer be offered at the end of your term and ensure up to 5 years in advance that you will have the best conditions. So it’s always worth staying informed and keeping an eye on the interest rate market even though your financing is already up and running.

Tip 5 – check the prime rate

When researching your refinance, it’s probably most important to always keep an eye on the prime rate. Different interest rate situations can have a huge impact on your financing. When interest rates are low, it is of course worth looking for a follow-up financing, but do not forget to consider the development in the next few years. When interest rates for construction financing are well situated, it is a good idea to tackle the real estate financing. So the prime rate gives you a good indication of how interest rates are and will be. If this is low, it is a good sign that low-cost financing is also within the realm of possibility for you in the coming years. As long as there is no inflationary pressure and the prime rate remains at its level, you have nothing to worry about for the time being and can start planning your follow-up financing undisturbed.

Tip 6 – Follow-up financing for builders

Especially for builders, buyers and customers it is important to conclude a good financing. Such a decision is for many a life-determining investment, which is why you should not rush the decision. Once your dream property has been found or you have decided to build your own four walls, the most important thing is to plan the financing first before you go any further. The financing will determine the next years or decades of your life, so you should be absolutely sure. Of course, the interest rates again play an important role and you should not hesitate to get several quotes to find the right financing for you. If interest rates are low, you should opt for a long term and adjust the monthly repayment rate to your individual needs. Pay attention to the option of changing the repayment rate, which you should do during the term. The best way to answer any questions is to talk to your bank advisor, who will be able to give you lots of helpful tips.

How useful was this post?

Click on a star to rate it!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.