Expiration of Mortgage on Building Loan: Steps to Take When Your Loan Term Ends
Article: Extending vs. Rescheduling Construction Financing in Germany: An Overview
When it comes to construction financing, two common options for follow-up financing are extending the loan or rescheduling it. Each choice has its advantages and disadvantages, and understanding these can help borrowers make informed decisions.
Extending Construction Financing: More Time, Higher Costs
Extending the loan maturity period provides additional time to complete the construction project, which can be crucial if there are delays due to unforeseen circumstances. However, extending the loan term usually means paying interest over a longer period, which increases total financing costs.
Another advantage of extending the loan is that it allows the borrower to maintain the original loan structure and possibly avoid negotiating entirely new terms. However, financial institutions might charge additional fees for extending loan agreements. If interest rates rise during the extension, refinancing might become more expensive.
Rescheduling Construction Financing: Adaptable Repayment Plans
Rescheduling involves restructuring payment plans and loan terms, potentially aligning repayments more closely with the borrower's cash flow. This can reduce monthly payments by spreading costs or deferring principal repayment. In some jurisdictions, including Germany, rescheduling or restructuring of loans may benefit from stamp duty exemptions, reducing transaction costs associated with the new financing agreement.
However, rescheduling can require detailed negotiations and paperwork, increasing administrative burden. Lenders might impose stricter conditions or higher interest rates due to perceived higher risk. Legal and advisory fees may apply, offsetting some benefits from stamp duty exemptions.
Interest Rates and Cost Comparison
Typically, extending a loan results in continuing with the existing interest rate, unless the loan is variable and subject to rate changes over time. Rescheduling often leads to a revaluation of credit risk and interest rates; lenders may increase rates to compensate for changes in risk profile. Rescheduling may offer lower short-term costs if repayment installments are reduced or deferred but might increase total cost if the loan tenure extends significantly.
Key Considerations
The actual cost-effectiveness depends on current market interest rates and the borrower's financial situation. Institutional policies and regulations can affect the availability and conditions of extensions vs. rescheduling. A professional financial/legal review is recommended to fully assess implications specific to each case.
Borrowers can choose to restructure, or reschedule, their loan with another bank as an alternative to extension. Dealing with various options for construction financing early will help find a good solution for follow-up financing. A follow-up financing calculator can be used to compare the impact of various options on factors like monthly installments and term.
The rescheduling of a loan with another bank is a separate financing option from the extension of the loan. The extension of a construction financing impacts the costs of a loan, as the interest rate and the term of the credit interest commitment may change. The decision to change partner banks for construction financing is often made due to better terms.
The average length of real estate financing in Germany is 25 years. Interest rates for real estate loans are currently rising, making follow-up financing more expensive in most cases. The extension of a construction financing is just one of several options available to borrowers.
In today's time, it is advantageous for homeowners to consider alternatives to extension. A credit application can be submitted online, eliminating the need to visit a branch. In follow-up financing with another bank, the remaining loan amount is paid off in one sum. After ten years, borrowers have the option to terminate the current loan agreement and take out follow-up financing with another bank. It is recommended to start researching alternatives or obtaining offers from banks one to two years before the end of the real estate loan.
Interest rates for residential construction loans can change over the 25-year period, especially since 2022. Changing banks can reduce overall costs of the real estate loan and lower monthly installments. Many borrowers choose the extension of their construction financing for convenience, as it avoids new applications and the need for land register entries. However, it is essential to weigh all factors, including monthly installments, term, and interest rates, to make the best decision for your financial situation.
[1] Source: German Federal Ministry of Finance, 2025.
- When contemplating follow-up financing for real-estate investments, another option beyond extending the loan is restructuring the loan with another bank, which could provide more favorable terms.
- Rescheduling construction financing, such as in real-estate projects, can offer adaptable repayment plans that might reduce monthly payments and potentially offer lower costs, although it may require negotiations and incur administrative burden, legal fees, and stricter conditions.
