Nowadays, fixed-interest rate periods with a term of 15-30 years are anything but individual cases. Needless to say, the more the amount of liability increases, the more expensive interest rates become. But at times of low interest rates, there could still be very attractive conditions. For customers who want planning security this might just be right for them. Nevertheless, is it really advisable to be bound to one interest rate for such a long time? In future, Is it possible that the interests will fall?
In this context, Paragraph 489 BGB (German Civil Code) comes into play:
There is no question that banks calculate the returns of the agreement concluded with the customer. Of course, they have the right to do this. However, after ten years have passed, clients are entitled, by the German Civil Code/paragraph 489, to cancel any loan agreement with a term longer than ten years, in whole or partially. This procedure is free of charge. Though a six-month period has to be met. This time limit of ten years starts the day, after your loan has been paid off in full. For example in case of financing a new building, loan will be paid out step by step, in line with the progress of the construction. Since the final instalment is due and your loan has totally been retrieved, on the day after the ten-year period, it is in force.
To what extend do you benefit from that? Effectively, you are bound by the loan agreement, only ten years and six month. As the case may be, you can restructure your debts by the use of a loan at more favourable conditions. In case the interest rates have risen, you can be pleased about that and in doing so, you can allow to continue the contract. Hower, should you have liquid resources in the meantime and you would like to use them for loan repayments, you can give a notice of termination in part, concerning this amount. Finally, you can use this sum as redemption.
As you can see, being up to date with legal issues, „being informed about paragraphs“, can be quite useful. Do you have any questions regarding this topic? Please feel free to contact our financing experts. They are really glad to assist you on this matter.
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Information about the author:
Alexandra Schneider is a certified bank business administrator and she writes about up-to-date topics, for FinanzierungsExpert.