When the fixed-rate period (Zinsbindung) of your property financing ends, the original debt is only rarely fully repaid. For the remaining residual debt (Restschuld) you need follow-up financing (Anschlussfinanzierung). How you structure it determines interest costs that often run to tens of thousands of euros over the coming years. This guide explains the three central routes – prolongation (Prolongation), debt rescheduling (Umschuldung) and the forward loan (Forward-Darlehen) –, the special termination right after ten years under § 489 BGB, the key deadlines and the typical mistakes. As property experts on Königsallee in Düsseldorf, we often see that follow-up financing is the obvious choice – yet sometimes an honest look shows that a sale would be the better path. This article provides general information and is no substitute for individual financial advice.
What is follow-up financing – and why does it affect almost every borrower?
Most property loans in Germany are annuity loans (Annuitätendarlehen) with a fixed-rate period of ten, fifteen or twenty years. During this period you pay a constant monthly instalment made up of interest and repayment. At the start the interest share is high and the repayment share is low – over time the ratio shifts. With a typical initial repayment rate of two to three percent, the loan is usually not yet paid off at the end of the first fixed-rate period.
The amount still outstanding after the fixed-rate period ends is called the residual debt (Restschuld). It is precisely for this residual debt that you need follow-up financing – that is, a new contract that continues to finance the remaining sum on new terms. Three routes are open to you:
- Prolongation: you extend with your current bank.
- Debt rescheduling (Umschuldung): you switch to a different bank.
- Forward loan (Forward-Darlehen): you secure today's interest rate for follow-up financing that will not fall due for several years.
Which route is the cheapest depends on the interest-rate environment, your residual debt, your creditworthiness and the loan-to-value ratio (Beleihungsauslauf).
Prolongation, debt rescheduling and forward loan compared
Prolongation is the extension with your current bank. It is the most convenient route: there are no notary and land registry costs, the documents are already on file, and the process is fast. The downside: banks often do not calculate the prolongation offer at the best market rate – the convenience can become expensive. When your fixed-rate period is ending, your bank must present you with a new offer no later than three months in advance.
Debt rescheduling (Umschuldung) means switching banks: a new bank settles the residual debt with the old one and continues to finance it on its own terms. The effort is greater (renewed credit assessment, documents, land charge processing), but the interest is often lower and the repayment more flexible. The switching costs are, in our experience, low.
The forward loan (Forward-Darlehen) is a special form of follow-up financing: you sign a contract today at a fixed rate, but it is not paid out until the future – at the end of your current fixed-rate period. This way you lock in the current interest level against future rate rises. The price for this is the forward premium (Forward-Aufschlag) (see below). With stable or falling rates, a forward loan can turn out more expensive in hindsight than regular follow-up financing arranged later – and it is binding, even if rates fall.
The special termination right after ten years (§ 489 BGB)
An important lever that many overlook: under § 489 (1) no. 2 BGB you can terminate a loan with a fixed borrowing rate after ten years have elapsed – regardless of whether the fixed-rate period still runs longer. What counts is the full receipt (the complete disbursement) of the loan, not the conclusion of the contract. The notice period is six months.
This termination is free of charge: the bank may not demand any early repayment penalty (Vorfälligkeitsentschädigung) for it. That makes the right especially valuable if more than ten years ago you signed at a high rate with, for example, fifteen years' fixing and rates are lower today.
Important is the rule on calculating the deadline: if a new agreement on repayment or the borrowing rate is made after receipt of the loan, the ten-year period begins from that new point in time. With follow-up financing or a forward loan, the ten-year period therefore generally runs from the date of the new contract. After effective termination the residual debt must be settled promptly – usually within two weeks – which is why the follow-up solution should be in place in good time.
Forward loan, forward premium and interest-rate hedging
With a forward loan you secure today's interest rate for follow-up financing that only starts in a few years. It is common in the market to conclude such a deal up to around 60 months (five years) before the current fixed-rate period ends. The longer this lead time, the higher the premium, because over this period the bank bears the interest-rate risk.
The forward premium (Forward-Aufschlag) is built into the borrowing rate and rises with every month of lead time. As a rough guide, consumer portals cite magnitudes of around one to three hundredths of a percentage point per month of lead time – the actual values vary greatly depending on market conditions, bank and term. You pay no forward premium if you arrange the follow-up financing only shortly before the end of the fixed-rate period.
Distinguish between a genuine and a non-genuine forward loan: with the genuine one, no commitment interest (Bereitstellungszinsen) accrues during the lead time, and the premium is priced into the rate. With the non-genuine one the contract can begin earlier, so that after a commitment-interest-free period commitment interest (Bereitstellungszinsen) accrues on the amount not yet drawn. Therefore check the product terms carefully.
Assessing residual debt, repayment and special repayment correctly
Before you compare offers, you should know your expected residual debt at the end of the fixed-rate period. It results from the original loan amount less the repayment made – both the scheduled repayment and any special repayments. Residual-debt calculators from independent portals such as Finanztip, Stiftung Warentest or the consumer advice centres (Verbraucherzentralen) help with the calculation based on loan amount, interest rate, initial repayment and fixing period.
The amount of the follow-up financing is your residual debt. The more you have repaid by then, the lower the new loan amount – and often the better the terms, because the loan-to-value ratio (Beleihungsauslauf) falls. A higher initial repayment rate in the first fixing phase noticeably lowers the residual debt.
For the new phase, check whether the loan offers special repayment rights (Sondertilgungsrechte). Every special repayment immediately reduces the residual debt and thus the future interest costs and shortens the overall term. Such rights are especially worthwhile if bonuses, inheritances or fluctuating income are to be expected. They often cost a small interest surcharge, which can pay off through the flexibility gained.
Switching banks: land charge assignment and costs
Your property financing is secured by a land charge (Grundschuld) entered in the land register. If you switch banks for the follow-up financing, the new bank must receive this security. There are two ways to do this: the assignment of the existing land charge to the new bank, or its deletion and a complete new entry.
In practice the land charge assignment is the standard case and significantly cheaper, because the land register merely records an assignment note and no new land charge needs to be created. The costs for this are, in our experience, only around 0.1 to 0.2 percent of the land charge amount. A full deletion with new entry is more expensive, because notary and land registry fees under the GNotKG are based on the land charge amount.
The switching costs are usually borne by the borrower. With debt rescheduling they are part of the calculation – yet given how low they are, switching is often worthwhile even at a slightly lower rate. The new bank usually coordinates the processing with the notary and land registry office itself; nevertheless keep an eye on the deadlines so that the settlement takes place punctually on the due date.
Typical mistakes, costs in view – and when a sale is the better choice
The most common mistake is relying solely on your own bank's prolongation offer. Always obtain comparison offers. Other typical mistakes:
- Starting too late: begin researching about a year before the end of the fixed-rate period. This avoids time pressure and unnecessary commitment interest.
- Overlooking the special termination right: anyone who signed expensively more than ten years ago can terminate under § 489 BGB and reschedule.
- Looking only at the borrowing rate: compare the effective annual interest rate, special repayment options and switching costs.
- Concluding a forward loan too early and too expensively: weigh the forward premium against the rate certainty.
An honest note as property experts: sometimes the best follow-up financing is none at all. If the instalment becomes permanently too high, life circumstances have changed, or a property no longer fits, a professional sale can be the calmer path. Richter Immobilien-Transaktionen is not a bank and not a financial advisory firm – but if a sale emerges as the better solution, then with over sixty years of experience and a network grown over decades with more than 20,000 contacts in Düsseldorf and NRW, we are your discreet partner for a sound valuation and a smooth sale.
