Debt rescheduling | Convert old or multiple liabilities into a cheap loan

Due to the current low interest rate policy of the Best Bank and the resulting low interest rate level, a comparison for the debt rescheduling of current loans is worthwhile. This means that a new loan is taken out at more favorable terms to replace the previous, more expensive loan. The bottom line is that savings can be made by saving interest of several thousand USD. If you compare correctly, the savings can again vary by several hundred USD.

However, it may not be that simple. We have compiled important points for you that you should consider before and during the debt restructuring:

Previous contract: termination and contract date

Convert old or multiple liabilities into a cheap loan

The previous contract must be terminated for rescheduling. This means that the entire loan amount must be paid back to the lender immediately. For this, of course, the liquidity must already be established – ergo: the new loan should have been confirmed in writing.

The date of conclusion of the contract for the old installment loan contract is also decisive. If this is before June 11, 2010, a notice period of 3 months applies. For contracts that were concluded after this date, the law provides for a so-called early repayment penalty. Up to 12 months remaining term this is 0.5 percent of the remaining debt – above that it is 1 percent.

effective interest

 

The decisive factor in comparing the previous loan agreement with the new, cheap loan offer is the effective annual interest rate. In contrast to the target interest rate, this also takes into account all other credit costs incurred, such as processing fees or loan fees.

The difference between the effective interest rates should of course be as large as possible so that the debt restructuring is worthwhile. You can easily determine your potential savings using the debt rescheduling calculator by entering the parameters that apply to you.

remaining debt

In order for the time and organizational effort for a debt rescheduling to be worthwhile, the remaining debt should still be relatively high – in other words, it will take at least one year to repay the loan.

credit-worthiness

credit-worthiness

In order to check the creditworthiness of the borrower, the bank usually carries out a Credit Bureau query for the new loan. This is to determine whether the previous installments have always been paid on time and in full or whether there are other discrepancies or other loans. If the query is not positive, the interest rate will be corrected upwards – the bank would like to finally have its default risk paid.

Compare debt restructuring loan

Compare debt restructuring loan

In order to compare the banks’ offers for a cheap debt rescheduling loan, there are various online comparison portals. These compile the data of the most important lenders clearly and usually also offer a debt rescheduling calculator.

After you have compared the offers based on your data, you can contact the selected banks directly and receive your individual offer for a debt rescheduling loan.

Debt restructuring as a variant of follow-up financing for the construction loan

Debt restructuring as a variant of follow-up financing for the construction loan

As is known, real estate loans with a term of up to 35 years do not receive constant interest over the entire term. If the fixed interest rate ends after 10 or 15 years, it is time to refinance the remaining debt.

For the sake of simplicity, you can extend your existing loan contract with your previous bank (prolongation). However, if the current interest rate level is low, follow-up financing can be negotiated with your bank on more attractive terms. This debt rescheduling is currently very common. You don’t have to stay loyal to your bank, but can look around for another cheaper provider for debt restructuring.

Please note that for a debt rescheduling loan from another bank, the land charge must also be transferred, which in most cases serves as security for the bank. The so-called real estate assignment is almost always sufficient for this. In a few cases, however, the bank requires that the land charge be deleted and re-registered. In any case, fees for the notary and court fees must be scheduled for these legal transactions. The amount of the notary fees is calculated based on the amount of the remaining debt. This can easily cost several hundred USD. In addition, one may have to expect release fees, the amount of which varies from bank to bank.

It is important that you take care of financing the remaining debt in good time before the interest rate lock expires. Collect all the necessary documents for the comparison and obtain information and offers from your bank as well as comparison offers from other banks. Also pay attention to special debt rescheduling campaigns where the new bank sometimes pays the costs of the land transfer.

When changing the bank’s risk of re-evaluation of the property always is. This evaluation influences the conditions of the follow-up loan. However, if the infrastructure of the residential area improves or you have invested in your property to increase its value, this can also have a favorable effect. The revaluation is carried out by the appraiser fees, however, only with a relatively high residual debt in contrast to the property value.

If the current interest rate level is significantly lower than when the construction loan was taken out, early rescheduling is a good idea. However, this variant should be calculated carefully, since in most cases the bank demands prepayment penalty for the lost interest. This is calculated from the loan amount as well as the interest rates and repayment rates. In addition, there are additional costs for the transfer of the land charge. The expected savings should easily exceed all costs of early debt restructuring. A zero-sum game is simply not worth the effort.

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