The forward loan is one of the most popular types of follow-up financing currently available on the financial market. With this, borrowers have the opportunity to secure themselves current interest rates before their current loan ends. In plain language, this means avoiding taking out a loan at a later point in time when interest rates may have risen again – and that can save a lot of money, depending on the loan amount.
In addition, a forward loan provides the borrower with a high degree of planning security, because it can be precisely calculated how high the future interest burden will be. Whether and when a forward loan is worthwhile for the individual borrower must always be decided individually. In our guide, we reveal the most important information on the topic!
Why is it worth taking out a forward loan?
The special thing about a forward loan is that the conditions can be secured up to a period of five years before the current start of the term. That means: No matter how interest develops after the contract is concluded – the interest rate fixed at the beginning applies.
This is a great advantage compared to normal follow-up financing, because it can usually only be concluded a year or a half before the end of the term. With the forward loan, borrowers can also choose whether they want to stay with the current bank or whether they are looking for a new bank. In any case, a comparison should be carried out in advance to find the most attractive conditions.
The payment phase of the forward loan begins immediately after the end of the first term. The time in between is also called the forward period.
When does a borrower make a forward loan?
It must always be decided individually whether it makes sense to take out a forward loan five years before the end of the term. The expected development of interest rates plays a major role here. If one assumes that the interest rate level will increase in the next few years, follow-up financing which is currently concluded early may be advantageous.
In principle, one should be aware that with a lead time of several years, it is always difficult to predict how interest rates will develop in subsequent years. In addition, borrowers can save a lot of money if they take out the loan at a later and cheaper time. Because many banks charge an interest premium for each individual month. With an average of 0.01 to 0.02%, this is very low, but still adds up after a while.
It is therefore advisable to carry out a calculation in advance – if necessary with the help of an independent expert or the bank advisor you trust. Because under certain circumstances, other factors also come into play, such as the amount of the loan, the repayment, the term and others.
How is the forward loan properly concluded?
The first step should always be to check how long the current rate lock will continue to run. If it expires in 60 months or earlier, you should definitely deal with the topic of forward loans. Interest rate developments should also be included in the decision. If it becomes apparent early on that interest rates will tend to rise, you shouldn’t waste too much time, but rather act quickly.
The next step is to get suitable offers for forward loans. The following applies: the more, the better – because the faster you get an overview of the current market and can better assess whether a loan offer is cheap or expensive. However, an important aspect in a comparison is not only to pay attention to the interest rate, but also to take other conditions into account. For example, it should be checked whether and to what extent the bank charges premiums. Sometimes there are big differences between the offers.
Of course it is much easier for borrowers if they do not switch to a new bank but stay with the previous lender. However, this of course does not pay off if another bank offers better conditions. If you have found a cheaper offer, you should submit the documents of your house bank – the bank may come towards you and submit even better conditions.
It can also make sense to carry out a debt restructuring that basically works in a similar way. If you find an offer for a forward loan that is at least 0.1% cheaper than the offer from the house bank, the debt rescheduling is quite profitable.
Conclusion: The right time is very important for the conclusion of a forward loan
Forward loans are basically a very good way to secure yourself low interest rates for a later date. However, the deal is only worthwhile if interest rates rise again in the near future. It must be taken into account here that the reverse can of course also occur: if interest rates continue to fall, you have done bad business and wasted money unnecessarily. By taking out the forward loan, you are betting that the interest will be more expensive at the end of the first term.
Finding the right bank for the forward loan is the best way to proceed
The number of banks in Germany appears to be increasing steadily: in addition to traditional branch banks and credit institutions, more and more direct banks are entering the market that do their customer business exclusively via the Internet. Borrowers often benefit from significantly cheaper terms than with their house bank. For this reason, a careful comparison should always be carried out before a forward loan is closed. An independent comparison can now be carried out on a wide variety of portals – completely free of charge and without obligation. Even if you have already received the first offers, you can still look for other banks. This is particularly recommended if you have several years anyway.
Of course, it is not wrong to contact your house bank first, but you should not rely too much on their offers only because of good relationships. It is important to bear in mind that even small percentage differences in the interest rate can make up a considerable amount if the loan amount is correspondingly high.
However, other factors should also be considered when considering which bank is the right one to take out a forward loan. For example, some customers value personal advice and on-site support, which is already eliminated with a direct bank on the Internet. If you can do without it, you should definitely look around for more attractive conditions online. The situation is similar with accessibility and the possibility of making special repayments. Not all banks offer this service, which can be very important for some customers. Ultimately, every borrower has to decide for himself what is important to him – and should therefore choose a bank that meets his requirements.