The term “forward loan” is derived from the English “forward”. Follow-up financing is concluded before the end of the fixed interest period. The borrower takes out an annuity loan with fixed interest rates in advance in order to secure favorable interest rates for later construction financing. So he signs the contract today, but does not call the money for a few months or even years.
The lead time – the so-called forward period – until the loan is paid out can take up to five years after the conclusion of the contract, the usual maximum is 36 months. In the meantime, there is no loan or commitment interest. However, banks can have forward loans paid through interest premiums of around 0.01 to 0.05 percent per month lead time.
This is how forward loans work
Forward loans are interesting for homeowners when they expect interest rates to rise and need to organize follow-up financing in a few months or years.
Prepare for rising interest rates in follow-up financing
When the existing mortgage is concluded, the borrower agrees a period with the lending bank for which the interest is fixed. If the loan has not yet been paid in full after the fixed interest period has expired, follow-up financing is provided in most cases. The lender and borrower are negotiating a new interest rate based on the current interest rate level on the financial market. Many borrowers have already had a bad surprise because an unfavorable interest rate development resulted in a higher borrowing rate than for the original loan agreement.
Solution: Save current interest
The borrower can therefore take out a forward loan up to five years before the end of the fixed interest period, which guarantees him current interest for future financing. This gives them planning security for their finances over a long period of time.
Forward loan calculator
The forward loan calculator calculates the possible interest margin for your follow-up financing in a matter of seconds. Simply enter the basic data and select “follow-up financing” as a project in the second step. Change the payment date to calculate the interest premium. You can then request a non-binding offer for your forward loan. The bank is selected from hundreds of offers and offers the best conditions for your individual financing.
How Much does a Forward Loan Cost?
When taking out a forward loan, the current interest rates are used to calculate future mortgage rates and rates. The borrower pays the current interest rate plus an interest surcharge. However, if the market situation suggests that loans will become even cheaper in the future, some banks even offer forward loans without an interest premium, especially if they are only months and not years in the future.
A forward loan is binding on both sides
During the lead time between the conclusion of the forward loan and the use of the loan amount (forward period), the borrower pays no interest and, of course, no repayment to the bank.
To do this, he must accept the forward loan after the loan agreement has been concluded. This applies regardless of interest rate developments:
- If interest rates continue to fall in the future and follow-up financing could be concluded more cheaply, the borrower is obliged to fulfill the contract and pay the agreed interest. Otherwise, the bank demands a non-acceptance fee – similar to a prepayment penalty for early termination.
- Even if interest rates rise in the future, the bank must still adhere to the conditions agreed in advance.
Change of provider for the forward loan
At the end of their fixed interest period, borrowers should obtain various offers for forward loans and choose the best conditions. Because they have the choice of extending the loan from the current lender (prolongation) or switching to a cheaper bank free of charge. An existing land charge can be assigned to the new bank, so that the notary and land register costs are not too high.