In phases with low interest rates, in which we are also currently located, the forward loan (advance loan) offers itself for the follow-up financing of a property. With such a loan, it is possible to secure favorable terms up to 66 months in advance.
How a forward loan works
Consumers with an ongoing real estate financing are now settling the interest rate on the loan of their follow-up financing. The payment of the advance loan takes place at the end of the fixed interest period of the current financing, which is then repaid. The installments for the new loan are only payable after payment. This reduces the risk of rising interest rates. Today attractive conditions can be secured for the future without having to pay a prepayment penalty. This gives borrowers planning security and helps save a lot of money.
What to pay attention to
Of course, the forward loan has its price. For each month until the loan is disbursed, the lender calculates a small interest charge. The interest rate for a loan in advance therefore always exceeds the current interest conditions. The longer the lead time, the higher the interest premium.
A completed forward loan must always be accepted on the terms agreed with the bank. That is, even if interest rates are lower at the time of payment, borrowers must reduce the forward loan. Given the currently historically low interest rates, a forward loan is particularly interesting because in the medium and long term interest rates are likely to increase again.
“Real” and “fake” advance loans
The real forward loan is a follow-up loan that starts interest rate fixing in the future but the terms are already fixed at closing. For the remaining months until the loan is disbursed, banks calculate an interest premium of between 0.01 and 0.03 percent. In some cases, the first six to twelve months are free of charge.
The non-genuine forward loan differs to the extent that the new fixed interest rate applies immediately upon conclusion of the contract, but the payment nevertheless only takes place at the end of the current financing. By the time of the replacement, the time is bridged with a time during which no provisioning interest is incurred. How many months the banks offer the loan without provisioning interest varies from bank to bank.
What Borrowers Need to Consider
When comparing different bids, it should be borne in mind that fixed interest on genuine and non-genuine forward loans starts at different times. that is, a fake forward loan with a ten-year fixed interest rate and a twelve-month stand-alone interest charge is comparable to a true forward loan if the application is made twelve months in advance and the fixed interest rate is nine years.
When comparing different forward loans, the different parameters such as the length of the lead time, the amount of the interest and the interest premium to be paid must be taken into account.
The forward loan can bring significant interest savings as interest rates rise. But since nobody can look to the future, it can happen that the bet on rising interest rates does not work out.