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Recalculate Real Estate Credit – Prepayment Penalty

Who wants to get out of the real estate loan, often pays way too much – that should change now!

Whether as an inflation-proof pension, long-term lucrative investment or speculative project: the purchase of residential real estate is back in line with low interest rates and unattractive alternatives for investments. In sought-after locations, the real estate market is already showing extreme signs of overheating: in 2013, private individuals from Germany were in the black at banks with real estate loans of 836 billion euros. It gets really expensive if customers want to get out of the mortgage loan prematurely, for example because they want to sell the property again.

Then, prepayment penalties will be calculated that really have it!

Prepayment Compensation for Real Estate Loan

According to the Consumer Centers, banks have massively increased the level of compensation over the past six years. Now our consumer centers are hoping that things will finally change. In 2015, a federal law on loans for real estate should be adopted in order to comply with a new EU directive.

We report on the six most important questions and focuses on this topic:

1. What did the Consumer Center investigate?

The experts of the Bremer Verbraucherzentrale evaluated 467 prepayment penalties for the years 2007 and 2008 as well as 2 978 cases for the years 2009 to 2013. Only loans and financing with a minimum volume of 15,000 euros from the entire federal territory were considered. The anonymized data provided information about the time of the contract and the term, the amount of the loan and the interest rate, the removal rate as well as the redeemed residual capital and the required prepayment penalty of the credit institutions.

2. What is a prepayment penalty?

If a bank grants a real estate loan, it calculates the agreed interest rate minus the costs as your profit for the financial expertsn of the contract. If the outstanding amount of the loan is repaid early, the bank receives less interest. To compensate for the resulting economic disadvantage, the bank or the bank may demand a prepayment penalty.

3. How exactly is this prepayment penalty calculated?

The amount of the prepayment penalty is calculated based on the interest that the bank would have received if the loan agreement had been continued as planned until the first ordinary termination option. Special repayments, as agreed, have to be taken into account as well as the lower administrative costs of the bank due to the premature termination of the contract.

A realistic example: A special repayment right of 2.5% was agreed for a real estate loan of 200,000 euros over a period of ten years. This means that the borrower can pay up to € 5,000 per year in addition to the agreed repayment. If the real estate loan is repaid prematurely after five years, the interest on a five-year prepayment penalty accrues for the remaining credit. Of the remaining amount on which the calculation of the compensation is based, however, the special repayments of 25 000 euro (5000 euro by five years) are deducted.