The forward loan offers private borrowers an inexpensive way to cover the costs of follow-up financing. The conditions are more favorable than in the high-interest rate phase and the lender can count on the borrower as a customer in the long term. How the forward loan works and where the advantages and disadvantages lie.
How does a forward loan work?
The forward loan has been available since 1996. The English term forward can be translated as forward or ahead. With the signature of the contract, the borrower fixes the interest up to 5 years in advance. If interest rates are particularly low at the moment, they will be taken into the future. This usually involves a certain interest premium, which varies from lender to lender.
Completing the loan is comparatively straightforward. The borrower agrees the fixed interest rate for follow-up financing in five years and then only has to wait for the loan to be paid out, which takes place when the debit interest rate expires and replaces the current financing. The new debit interest rate will only come into effect on the payment date – unless it is a “fake” forward loan.
The advantages of a forward loan
The forward loan is basically a conventional annuity loan with special conditions. As such, the borrower can secure various benefits. The loan guarantees that favorable interest rates can be secured for a period of five years into the future. This ensures planning security for any upcoming follow-up financing. No commitment interest is payable during the forward period.
This enables the borrower to make huge savings since the interest is only offset at the end of the run.
The greatest advantage of a forward loan is planning security. After the loan has been taken out, the monthly installments remain the same and the borrower can determine the financial means precisely.
Forward loan is binding
A forward loan is binding. It is a classic loan contract that must be adhered to by both parties. This means that with the conclusion of a forward loan, the borrower is obliged to accept the interest – even if it is lower than the interest specified in the forward loan at the time of payment.
If you do not want to accept the forward loan, the so-called non-acceptance fee is due. The borrower is therefore bound by the contract, regardless of whether living conditions change or the interest market has become more attractive at the time of payment.
Forward loan: What does the interest premium depend on?
The interest rate risk increases with the term until the payment. From the bank’s perspective, this also increases the risk, which is why hedging transactions are becoming more expensive. The interest premium depends on the period in which the payment is to take place. The shorter the interest rate is set, the cheaper the premium will be.
The forward loan is mainly suitable for follow-up financing.
The basic prerequisite for the loan form is that the redemption date and the loan amount are fixed. Because the individual requirements can vary from situation to situation, the details should be discussed in detail with the bank advisor before taking out a forward loan.
Deadlines for the forward loan
The forward loan is tied to certain fixed terms. A forward loan can be taken out if there is 5.5 to 1 year between the conclusion and the end of the fixed interest period. As with other forms of credit, borrowers have to get an overview of the market and compare different offers. The bank usually sends the extension offer no later than three months before the end of the fixed interest period.
Then it is time to extend the fixed interest period or to take advantage of the forward loan.
The loan type also has advantages for borrowers who want to start a business, for example. Follow-up financing is also ensured in this case with the forward loan. In contrast to other forms of credit, which are often associated with a certain degree of uncertainty regarding the interest rate level, all eventualities are clarified with the forward loan.
In the case of a forward loan, the debit interest rate begins immediately when the contract is signed. If the date for follow-up financing is one year into the future, twelve months of the commission rate will be lost. Ultimately, this results in higher residual debt than with the classic forward loan.
The advantages of the forward loan at a glance
The forward loan has several advantages compared to other forms of loan. First of all, the special form of loan offers itself due to favorable conditions. An interest rate low can still be used in the future if interest rates may have already risen. This is particularly profitable with longer terms.
The fixed interest rate is an important security, especially when building a house, which makes financing possible for many people. By eliminating financial pressure, borrowers are also in an optimal negotiating position with the bank. Unfavorable contract terms do not have to be accepted because there is no financial pressure.
How the total load is composed
Lenders and property portals provide borrowers with various tools to calculate the conditions for the forward loan. This includes loan calculator and forward calculator as well as detailed information on the different types of loans. When in doubt, inexperienced borrowers should contact a professional financial professional. In cooperation with a professional, the loan contract can be designed exactly according to the ideas. Then there are no difficulties in using the low interest rates.
Forward loans for private borrowers
The forward loan offers private borrowers an inexpensive way to cover the costs of follow-up financing. The conditions are more favorable than in the high interest rate phase and the lender can count on the borrower as a customer in the long term.
In the case of a forward loan, there are further advantages from planning security. After completing the loan, the borrower can turn his attention fully to the financing and no longer has to keep an eye on the interest rate market or make comparisons.
Conclusion: when a forward loan is worthwhile
The forward loan is ideal if the environment is stable and a suitable time is chosen for setting the interest. If business changes or a move are imminent, the borrower runs the risk of financial damage. A forward loan can bring security into personal financial planning. The guaranteed rates and independence from the current interest rate offer security. This is particularly advantageous in today’s real estate market.
Financing that is to be realized without large equity capital in particular benefits from a forward loan. The savings over years bring the convenience that the current interest rate environment can be completely hidden.
Once set, the chosen interest rates remain and further research is not necessary. In particular, people who are not very well versed financially benefit from a forward loan if they get the help of an expert to clarify the contractual details.