Real Estate Loans Expire With Low Residual Debt – What To Do?

In Germany, it is customary to conclude real estate loans in conjunction with a fixed interest rate. The reason is simple: The fixed interest rate ensures that the interest rate of the loan is fixed for a fixed space – often 10 or 15 years. This creates calculation certainty, the amount of monthly payments is certain.

However, it is only a matter of time before the rate lock expires. Often, the loan is not fully repaid by this time. There is a residual debt, almost always a new financing is completed. This is followed by the so-called follow-up financing.

The first follow-up financing often still involves a considerable amount of residual debt, so that once again a fixed interest rate of, for example, 10 years is chosen. Sometimes, however, the situation is different because the residual debt is no longer so high. Those who diligently paid off or look at the second follow-up financing is often in such a situation.


Problem with low residual amounts

financial loan

Then the question arises how to proceed. A key problem is that many banks are only lending their real estate loans for an amount of 50,000 euros. Assuming the residual debt amounts to only 30,000 euros, a conventional follow-up financing is not always possible.

First, it should be noted that it depends entirely on the bank. Some financial institutions certainly give their customers the option of making a new loan out of this amount. However, the financing then has to be continued at the existing bank. However, switching to another bank is not possible because the loan amount is too small.

Of alternatives, such as the inclusion of a corresponding installment loan, is strongly discouraged. In such a case, the favorable mortgage rates would no longer apply. Instead, a significantly higher interest rate is due, which makes financing much more expensive.

Another solution may be to increase the loan amount. If you have purchased a property 10 or even 20 years ago, you may want to modernize or at least renovate some areas. By increasing it would be possible to get the financial space needed. Depending on the bank, the financing purpose does not even have to be tied to the property. The collateral is secured by mortgages, which offers the best conditions. This possibility could also be used, for example, to finance a car. However, then interest rate maintenance should be kept in mind, because many borrowers do not drive their cars for 10 years.


Strive for a quick repayment

The term “low residual debt” should be interpreted individually. Depending on the income and asset situation, a residual debt of more than 50,000 euros can be considered low. For example, at the end of his fixed interest period, a borrower had to repay another 60,000 euros, and he set a period of three years for this purpose.

In such cases, different solutions are available. For some banks, it is quite possible to choose fixed interest rates in individual annual steps. In the said case, it would have offered, to choose a fixed interest rate of 3 years in connection with a VG Loan. However, the homeowner decided otherwise. In view of the “manageable” loan amount for him, he chooses a variable loan that is not subject to interest rate fixation. So he can repay the loan or larger amounts at any time. He has entered into the risk of an unfixed interest rate, which can thus be changed at any time, because it is also manageable for him.

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