Close home loan prematurely, by revocation or early repayment penalty
Job-related relocation, unemployment, a serious illness, separation from a partner, an unexpected inheritance or simply the desire to benefit from the currently very favorable interest rates – there can be a variety of reasons why a borrower would like to terminate a current home loan early.
However, it is not easy to get out of a loan agreement. With the exception of a few special cases, the borrower can not terminate his mortgage lending until the fixed interest period has expired. If the borrower insists on prematurely replacing his real estate loan, he usually has only two options. The first option is to pay the bank a prepayment penalty. The second option may be to revoke the loan agreement.
The following article explains when which option is possible
how the whole thing works and what to look for :
Ending the construction loan by means of a revocation is in principle possible for borrowers who have completed their real estate financing after 2 November 2002. Since this deadline, loan repossessions for real estate must in fact contain a revocation instruction. Practice shows, however, that many cancellation policies are flawed.
However, the layman will hardly be able to determine whether the cancellation policy in his loan agreement meets the legal requirements. Before he decides to revoke, he should therefore necessarily seek advice from a lawyer. The right of withdrawal itself does not expire and can still be used even if the loan agreement has already ended. If the borrower revokes the loan agreement, the contract is reversed.
This is done by the borrower to the credit institution, the loan granted back. In return, the bank repays the loan installments paid by the borrower. Now, the bank was able to work with the money from the loan installment in the meantime and thus make a profit.
This advantage must be paid by the bank to the borrower. For this purpose, the financial institutions base the base rate plus a certain percentage on. On the other hand, the borrower must reimburse the financial institution for the granting of a loan and the loan amount. The basis for this is usually the interest rate agreed in the loan agreement. The big advantage of a premature withdrawal by revocation is that the bank may not charge a prepayment penalty if it has accepted the revocation.
If the loan agreement has already ended, the borrower can use the revocation to bring back an already paid prepayment penalty. It is important to know that after a successful and accepted revocation, the bank can set a deadline of 30 days for the repayment of the loan amount or the remaining debt.
However, getting the money within 30 days if it does not exist or finding follow-up funding in this short period of time is unlikely to be possible. The borrower should therefore revoke the existing loan agreement only after further financing has been arranged.
In principle, an exit from the loan agreement is excluded in the period in which the interest is fixed. There are only two exceptions. The first special case is when the financed property is sold. Then, the borrower has a legal right to prematurely repay the construction loan.
The second exception is when the property is to be used as collateral for a supplementary loan and the credit institution refuses the additional loan. Also in this case the borrower can replace the construction loan prematurely. If the borrower uses his legal right to early redemption, the bank must accept the termination. However, it may charge for the damage caused by the premature exit. This is done by the so-called prepayment penalty.
Basically, a financial institution must present the calculation of the compensation in such a way that the borrower can understand how the money house comes to the amount. Often the calculation is anything but transparent to a layman. The Borrower is therefore well advised to pay the indemnity initially with reservation, in order to obtain the cancellation allowance for the mortgage or mortgage. He should then have the calculation checked by a specialist.
In the absence of any of the exceptional cases mentioned above, the borrower can only exit the construction loan prematurely if the bank agrees. In this case, too, the bank will have the premature termination paid by a prepayment penalty. Sometimes, instead of a prepayment penalty, there is also talk of a cancellation fee.
The calculation of the compensation must also be understood by the borrower. However, in the case of an early exit to which the borrower has no legal claim, the amount of compensation may be higher than the actual loss incurred. Specifically, the financial institution can demand compensation that may be up to twice as high as the fees that the financial institution actually escapes through the premature repayment of the construction loan. It is therefore recommended that the amount of the prepayment penalty be checked by a specialist.
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Topic: End construction loan prematurely, by revocation or early repayment penalty
Matthias Kumpertz, 38 years, financial advisor and Marlene Heuer, 46 years financial advisor, as well as Christian Gülcan, operator and editor of the website, write interesting facts, tips and advice on finance, capital, financing and banks. Guides, investments and financial plans for consumers and investors.
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