Debt restructuring of mortgage lending: How to redeem your home loan

The rescheduling of a mortgage loan can hold considerable monthly savings potential, especially in times of low interest rates. With a remaining debt of $ 100,000, almost $ 84 can be saved per percentage point of cheaper interest. However, banks are allowed to charge a high prepayment penalty during the first 10 years, which relativizes the interest savings. In order for debt restructuring to work smoothly, the borrower should note a few points.


When is debt restructuring possible?

debt restructuring possible?

With the You can use the detailed building rate calculator to determine the cheapest current interest rate for your building loan. in the Follow-up financing calculator, you can enter the interest rate difference to your current loan to see the cost savings in euros. If this is greater than the prepayment penalty, rescheduling is worthwhile.

The borrower can reschedule his mortgage in three ways:

  • If there is a legitimate interest at any time – in this case, however, a prepayment penalty is due. A notice period of 3 months applies here.
  • After ten years, the borrower can reschedule his building loan with six months’ notice.
  • After the fixed interest period has expired: If the contractually agreed fixed interest period expires, the developer must repay the loan in full or take out follow-up financing and can also do so Agree Bank.


Rescheduling debt if interest is justified: Attention, prepayment penalty!

Rescheduling debt

In the first ten years, the building loan can only be terminated if the interest is justified before the end of the fixed interest period. This interest is given, for example, when the financed property is sold. In this case, the bank may levy a so-called prepayment penalty. The amount of this penalty fee is not regulated by law, but should correspond to the interest received by the bank due to the premature termination.

No prepayment penalty with a flexible interest rate

The prepayment penalty is payable on every loan with a fixed interest rate. There are very few exceptions to this. The situation is different with a loan with a flexible interest rate. A free cancellation is possible at any time with a three-month period.


Debt after ten years

The ten-year period begins when the loan is paid in full. After the ten-year period, the borrower can reschedule the loan without being fined. For this he uses the special right of termination according to §489 Paragraph 1 No. 2 BGB.

There is usually little to consider here. The financing can be made freely with any financial service provider. It should only be noted that follow-up financing is prepared early enough. The remaining debt is due when the loan contract expires. If the amount cannot be paid out of one’s own assets or cannot be paid through debt rescheduling, there is a risk of foreclosure.

The prolongation: follow-up financing without debt restructuring

If you decide to stay with the same provider, you are running a so-called Prolongation. This means nothing else than that the existing loan contract is extended, but conditions such as interest and repayment are agreed again. The lender must propose or exclude a prolongation no later than three months before the end of the fixed interest period. However, the prolongation agreement can also be concluded up to twelve months before the fixed interest period expires. This makes sense especially in times of rising interest rates.

Advantages of prolongation

The advantage of prolongation is the convenience for the borrower. Since the framework credit conditions remain the same, nothing has to be re-examined here. In addition, there are no costs due to a land register rewriting that would be necessary if the provider changed. However, since this is usually only a few hundred euros, this argument is of little importance.

Disadvantages of a prolongation

Some banks speculate on the convenience of their customers and make a worse offer than the competition. It is therefore worthwhile to obtain some comparison offers and to renegotiate with the financial service provider on this basis.


The forward loan for follow-up financing

credit loans

The Forward loan is a specialty in finance. It enables borrowers to secure an existing interest rate for the future. The forward loan can be agreed up to 60 months before the current follow-up financing. The borrower usually buys the interest rate security with a small interest premium of 0.01 to 0.06 percent per month.

The forward loan is made up of two periods. In the forward period, the borrower is exempt from all installment payments. At the end of the forward period, the construction loan is paid out and payment in installments begins. This means that a borrower can plan the debt rescheduling of his construction loan years in advance.

A forward loan is always worthwhile if an increase in interest rates can be expected. If, on the other hand, the construction interest falls contrary to the original assumption and the borrower does not want to accept the forward loan, he must again pay the bank a high non-acceptance fee.

A loan from a developer faster and cheaper, but not necessarily optimal

Developers usually work with a limited number of banks that offer faster loan granting, and often lower costs.

The developer can ensure the satisfaction of the buyer not only by offering the best apartment at the lowest possible price.

Many companies are also trying to cooperate with banks, which, with a small number of resources, can simplify credit procedures and reduce the cost of credit. It is worth remembering, however, that even the best offers presented by developers should be compared with others available on the market.

Simplified Procedures


When applying for a loan in the developer’s sales office, you can count on simplified procedures and, as a result, shorter time to obtain financing.

However, this applies only to selected companies. – Thanks to the well-established business relations that connect us with selected developers, their clients can count on a simple, convenient and extremely beneficial way of financing selected investments – explains Agata Chrzanowska, Director of the Mortgage Department at Fine Bank.

This is because the documents regarding selected investments are in banks. On the one hand, the buyer does not have to complete them anymore, and moreover, bank analysts do not have to re-analyze them.

The down payment should not be lost


In addition, when submitting a loan application through the developer, you can more often find provisions in the contract that allow you to recover the down payment or reservation fee when the bank refuses to finance. Even if there are no such entries, it will undoubtedly be easier for the developer to win them by looking for financing through it.

Lower cost of granting the loan

Lower cost of granting the loan

Another benefit for buyers highlighted by developers is the lower costs of granting a loan. It is especially about the lack of commissions and the lack of fees for the valuation of the property.

It should be emphasized that such promotions are very common on the market today, so it does not necessarily have to be an additional advantage of taking a loan in the developer’s sales office.

There are, however, interesting solutions dedicated by banks to specific developers. – In the case of our company, the PKO BP bank has created a unique grace period for capital and interest installments until the apartment is picked up – indicates Krzysztof Foder, Sales Manager of Bouygues Immobilier Polska.

Lower margins are rare

It seems that the most advantageous from the buyer’s point of view is a reduction in the credit margin. The commission is paid once, and the margin affects the interest rate on the loan throughout the entire debt settlement period. Good Finance, a representative of Breevast developer who cooperates with the Honest Bank, declares such benefits for buyers.

Similar solutions are most often available for buyers of housing lending in a bank, which also finances the developer. – In such cases, the margin reduction may reach 0.2 pp. relative to the standard offer – says Sean Cole, Home Broker advisor from Warsaw. It is also worth noting here that this is a kind of paradox because the bank lending to both the developer and the buyer is more exposed to risk.

How to Finish off with a loan?

When buying a property from a developer – the standard is usually bare walls and floors. However, a used apartment often needs refreshing or rearranging. Is it possible to finance this type of construction work? Does it require a loan exceeding the value of the property?

At the outset, it should be noted that finishing or renovating is one of the basic goals of a mortgage. Banks treat this as a housing purpose and apply the same price conditions.

How is it possible that the bank is ready to give a loan

How is it possible that the bank is ready to give a loan

For the entire price of the apartment and add to the finish? After all, only a few finances over 100% of the property value. The answer is simple. When determining the value of collateral, i.e. real estate, the bank adopts as its 100% future value after finishing or renovation.

Let’s assume that we are buying a flat from a developer for 400,000 USD and an additional 50,000 is needed. USD for its finishing. The target value of the apartment will be 450,000. USD, i.e. in total the loan will be granted for 100% of the value. Of course, the bank will only add the amount that it believes increases the value of the collateral.

Therefore, it may happen that if the bank measures the value of the apartment after finishing works at 430 thousand. USD, additional funds will be granted in the amount of only 30 thousand. The other 20 thousand we will have to layout ourselves.

It is quite easy to calculate it with a development flat because practically all the extra amount increases its value. In the secondary market, the estimates are more individual. 50,000 put into renovation here USD will not necessarily increase the value of the collateral by the same amount. In general, however, there is no major problem with obtaining a loan for such a purpose.

You need to prepare an estimate of work on a special bank print

You need to prepare an estimate of work on a special bank print

However, you must remember that the values ‚Äč‚Äčentered are as real as possible, as the bank may not accept the understated estimate. Too high an amount can also be questioned and the loan can be reduced to a level accepted by the lender.

This is understandable, as too low an amount for renovation will not further increase the value of the property, and the too luxurious finish does not give the bank a guarantee that the collateral is actually worth so much. In any case, the difference can, of course, be covered from its own resources.

Unfortunately, it will not be possible to finance the entire interior design with such a loan. The rule here is quite simple: you can credit what is permanently associated with the property and for what will increase the value of the apartment.

Therefore, the bank will lend for installations, plasters, partitions, painting, tiles, terracotta, floors, balustrades, etc.

The bank will not grant a mortgage for the purchase of furniture, TV and other moving parts.

Part of the equipment increases the value of the property, which is why in most banks you can get a loan for the kitchen, built-in kitchen appliances, built-in wardrobes, bathroom equipment such as a bath, shower, sink, toilet, and bidet.

The moment of launching the loan for the interior arrangement is specified in the loan agreement. However, you can specify general principles that banks apply.

If the apartment is purchased from a developer


The finishing amount can be started after the technical acceptance of the apartment, before the notarial deed. When buying a used apartment, payment will be made after the notarial deed. However, if the loan for renovation concerns already owned real estate, you can apply for payment immediately after signing the loan agreement.

In the case of higher loan amounts, it can be paid out in tranches. To get the next tranche, please submit photos from the work already done to the bank. Some banks require an inspection of the property by an authorized person and it costs about USD 100. Today, invoices are rarely required to settle works.

Therefore, you should not be afraid to apply for a loan for finishing or renovation, even if the bank is financing the full amount of the apartment. In the eyes of the bank, property in the good technical condition is better than a building that has not been renovated for many years.