Special right of termination in construction financing.
Would you like to redeem your credit early? We can tell you when it is possible to terminate your mortgage without incurring any costs and what conditions are attached to the special termination right. Here are some tips from Singapore moneylender Cash Mart about personal loans.
Early repayment penalty for early termination
Not everything always goes according to plan – this applies not only to life, but also to construction financing. So it can happen that homeowners have to repay their loan prematurely. There are many reasons for this: a new job in another city, separation from one’s partner, unemployment, death, but also the desire to reschedule one’s debt can be circumstances that can cause the loan to be terminated.
In recent years, many borrowers have opted for a fixed interest rate of more than ten years in order to benefit as long as possible from the current low interest rates. A good idea in itself, but if you want to repay your loan prematurely – i.e. before the fixed interest rate expires – you will often have to pay a prepayment penalty. This means that you will have to reimburse your bank for part of the interest it misses due to the early repayment of the loan. However, there are exceptions in which you may terminate your mortgage without early repayment penalty. We would like to briefly explain which these are in the following.
Termination without early repayment penalty
The easiest way to cancel your loan agreement at no cost is to wait and see. After ten years of credit, you can make use of your special right of termination in accordance with § 489 BGB at any time – under the following conditions:
You may only terminate your construction financing ten years after full disbursement of the loan. This means that the decisive factor is not the date on which you signed the loan agreement, but the date on which the last instalment – and thus also the entire loan – was paid out to you. The ten-year period then begins on the following day. You should bear in mind that the construction loan for newly built properties is often paid in several installments, so that the full disbursement can extend over several months. Nevertheless, the start of the period is always the day on which the last instalment was paid.
The credit agreement must not have been changed by this time. If, for example, the interest rate or the term were changed, the ten-year period starts anew at the time of the new agreement.
The notice period after ten years is six months. If this period has expired, the termination becomes effective. If the date falls on a public holiday or weekend, the last day of the notice period is postponed to the next working day.
After expiry of the notice period, the remaining debt must be paid within two weeks. If the repayment does not take place within this period, the cancellation is deemed not to have taken place and your construction financing is in effect.
An example of the special notice procedure
You concluded a loan on 08.05.2007, but did not receive the full amount until 15.05.2007. The ten-year period begins on the following day, 16.05.2007. If you would like to terminate your building loan now day-exactly after ten years, your written notice must be available to the bank up to 16.05.2017. The six-month period of notice ends then to 16.11.2017. Now you have only two weeks, thus to 30.11.2017, time, your loan to repay Important: Before expiration of the period of notice a repayment of the money is not possible, since up to this time the notice is not valid as yet.
Tips on the special right of termination in construction financing
If you meet the requirements to terminate your loan agreement after ten years, the bank may not refuse you termination. This is still important in the event of a premature repayment of the loan:
A special termination according to § 489 BGB is only possible for borrowers, banks may not simply terminate the construction financing.
If your loan is terminated after ten years, there is no early repayment penalty.
You do not have to cancel the entire building loan, but can also only partially redeem it.
Be careful when extending deadlines: If your bank makes you an offer before the end of the ten-year period – for example for an interest rate reduction – and you accept it, the period begins anew and you have to be patient again for ten years or wait for the end of the fixed interest period until you can cancel your loan.