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EARLY REPAYMENT PENALTY WHEN SELLING A HOUSE OR APARTMENT
Property owners who want to sell their property before their loan has been paid off have to deal with the early repayment penalty. What options are there for dealing with it?
IF THE BANK TERMINATES AN EXISTING PROPERTY LOAN
If instalments on a property loan are not paid, the bank terminates the loan agreement. In this case the bank may not demand an early repayment penalty.
IF THE INTEREST RATE IS VARIABLE
This is another case in which banks may not charge fees for early repayment. Put plainly, the interest rates are adjusted to the current interest level at regular intervals. If such a loan agreement has been concluded, no early repayment penalty may be charged either.
IF THE PROPERTY WAS FINANCED WITH A BUILDING SOCIETY LOAN
Unlike a mortgage, a building society loan (Bauspardarlehen) can be repaid partly or fully at any time. No notice periods have to be observed and no additional fees are charged. This option of special repayment is set out in the building societies' general terms and conditions for building savings contracts.
NO EARLY REPAYMENT PENALTY WHEN EXCHANGING PROPERTIES
Suppose the reason for the sale is the purchase of another property that is again financed by the same bank. In this case, too, the bank does not charge an early repayment penalty. It suffers no loss of interest, as a new property loan is concluded with the same bank.
THE NEW BUYER TAKES OVER THE PROPERTY LOAN
The ideal case is when the new buyer takes over the seller's loan agreement. However, the bank must agree to this. The buyer must have a regular income and needs a good credit rating. The income must be high enough to cover monthly living costs and also pay the loan instalments.
THE BANK'S CALCULATION SHOULD BE CHECKED BY EXPERTS
If none of the reasons above apply and the bank actually charges an early repayment penalty, it should be checked by experts. Independent legal and financial experts review these calculations. If it turns out that the bank has charged too much, the borrower can write to the bank and enclose the result of the expert report.
GOOD TO KNOW
Regardless of the early repayment penalty, the bank may not refuse to terminate the loan when the property is sold. If the property is no longer there, the loan is no longer secured. A bank may also not refuse termination if the borrower wanted to increase the existing loan, the bank refused and the borrower obtained the loan from another bank. This happens, for example, when an extension or modernisation is planned.
BEWARE OF REFINANCING
If another bank offers a better interest rate than the previous lender, the bank may even refuse to terminate the loan. If the borrower unexpectedly comes into a larger inheritance and wants to use it to repay the loan early, he is dependent on the bank's goodwill. If the bank agrees, not only the remaining balance becomes due but also an early repayment penalty.
CONCLUSION
"Look before you leap" applies not only to marriage but also to property loans. These are long-term loans that usually come with a fixed-interest period. When a property is sold, the early repayment penalty can make things very expensive.