Existing loan is replaced by a new loan
In many cases, loans are concluded with a term of several years, and in the case of construction finance even with several decades. However, numerous changes can occur during this time. For example, it may no longer be possible for the borrower to raise the previously agreed high loan rates, and the interest rate level may have dropped in the meantime, so that it may make sense to reschedule the existing loan. More of this story: super8chatham.com
As part of a debt restructuring, an existing loan is replaced by a new loan. This is interesting, for example, if the new financing is significantly cheaper than the existing one, but also if several small loans can be merged, which reduces the rate burden, rescheduling can be worthwhile.
Loan is closed immediately
A redemption loan must therefore be taken out for the debt rescheduling. This can, but does not have to be agreed with another institute. However, when taking out the loan, it should be noted that the existing loans can often not be repaid easily because borrowers must observe notice periods. If an existing installment loan is to be repaid, notice periods of six months must be observed. If the loan was concluded before the new consumer credit directive, which came into force in June 2010, the terms of the contract may still include the termination notice in the first six months. Newer loans and loans after the first six months can be canceled with a notice period of three months so that the new loan can then be used.
In the case of construction finance, however, the redemption loan cannot be used as quickly because the notice periods are significantly longer. In the first ten years, termination is generally not possible or only possible by paying a prepayment penalty. After the first ten years, the termination is then possible with a period of six months. In order to still be able to take out the cheap redemption loan at the currently low interest rate level, the banks offer the forward loan. This loan is closed immediately, but the payment can be postponed up to five years into the future. During this forward time there are of course no interest costs and payment obligations, so that they only serve to hedge the interest on the redemption loan.