The forward loan is suitable for follow-up financing for real estate loans. As a special type of financing, however, the forward loan has some specific features. The English word forward means something like advance. What is meant by this is securing current interest rates on loans, even if the loan will only be needed and accessed in the future.
Although a fee is due for this procedure, the borrowers can still secure the currently valid, lucrative interest rates. Rising interest rates can thus be avoided. Even 5 years before the foreseeable end of an interest rate fixation, it is possible that borrowers can secure the attractive interest rates of a forward loan permanently.
Secure good conditions permanently
There is a monthly interest surcharge and if the loan is not called, considerable costs for a so-called purchase fee can arise. In addition, consumers are advised to carry out a provider comparison before a possible follow-up financing with a forward loan. Because the corresponding conditions can vary considerably, which again offers considerable savings potential in the overall result.
Especially in a phase of low-interest rates, many builders are rightly considering how these conditions can be permanently secured. An existing loan financing with perhaps too high-interest rates could be terminated prematurely and a new loan with lower interest rates could be agreed, but this is not profitable due to the prepayment penalty. Experience shows that during the fixed interest period,
This is how the forward loan works
That is why there is a forward loan so that you can benefit permanently from the favorable conditions of a low-interest rate phase. In principle, a forward loan does not work much differently than classic follow-up financing.
The decisive difference lies in the fact that the interest rates applicable today can be fixed permanently before the end of the fixed interest period. The forward loan is therefore a special form of the so-called annuity loan, whereby the term and repayment are fixed. If the forward loan is available for call, the interest rates do not change until further financing.
It is therefore worthwhile to consider the possibility of a forward loan as follow-up financing up to 5 years before the end of the fixed interest period. Anyone who does not take this into consideration has basically no choice but to agree on conventional follow-up financing with the then supposedly higher interest rates that then apply.
The advantages of the forward loan
The purpose of the forward loan is, in particular, to hedge itself against ever-increasing interest rates in the future. Of course, it should be possible to estimate in advance how interest rates are likely to develop over the next few years. This is sometimes not easy if there may be a few years between the completion and further financing.
If a bank makes a binding commitment to the current interest rate for a future-forward loan, a surcharge is required every month. Anyone who concludes a forward loan for follow-up financing is therefore almost certain to assume that interest rates will rise in the future. If, contrary to expectations, this should not be the case or interest rates would even fall, the forward loan could end up being even more expensive than the current loan terms.
Interest rate increases after forwarding loan interesting
It also applies that a forward loan is more expensive the longer the lead time is until the payment date. The final costs for a forward loan are calculated from the three factors expected interest rate development, lead time until the payment date and the currently applicable interest rate. The amount of the monthly premium depends on how a credit institution estimates the future course of interest rates.
If the current borrowing rate is low, the forward loan for follow-up financing is always considered. As part of real estate financing, it was observed that the interest rate level was continuously low until 2017. Since then, however, the interest rate level has risen visibly again, which is why consumers are increasingly interested in a follow-up loan when it comes to follow-up financing.
How to take out a forward loan
Under no circumstances is it absolutely necessary to take out a forward loan from the bank that has also approved the current financing. In order to be able to reliably estimate the total costs of a forward loan, attention should be paid to the effective annual interest rate. Because this effective interest rate contains all the cost points of a loan. Free months, which are offered by some banks, are also a savings option.
For example, customers can benefit from not paying any interest premiums for 3 months or longer if agreed when a forward loan is taken out. To conclude a forward loan, certain documents are required, as with any other loan. In addition to the signed loan application, copies of the ID card, evidence of salaries and equity, other collateral and building insurance, and property assessment by an appraiser are usually required.