One of the factors which can help you reach a decision while buying property is special payments or lump-sum payments (Sondertilgung). Let’s dive into the details of the special repayments. Let’s try and answer some very important questions like do the banks offer this service for free or do you have to pay for it?
What are special repayments?
Real estate finance is usually done through EMI’s (Equated Monthly Installments) (Annuität), which is a fixed monthly amount that one has to pay after taking a loan. The loan amount and the interest paid on it depends on the tenure. A special repayment is the additional payment outside of these EMI’s. The loan is repaid faster which reduces the remaining amount to be paid, shortens the tenure and a lower interest is paid.
Is the special repayment beneficial for me?
For a lot of banks the special repayment is free of charge as many people opt in to pay off their loans faster. However, for some banks one needs to pay a higher rate of interest for these special repayments. What you as a buyer need to figure out is, whether you have the cash to pay off the loan and how much money are you going to save through these special repayments.
Example of a special repayment
Say you receive a loan for about 10,000 EUR on which you have to pay 3% interest. That means that you’ll be paying 300 EUR as interest every year. Now a special repayment of 10,000 EUR does not really make sense as the amount that you save in a year is only 300 EUR. What you would end up doing in fact is block 10,000 EUR which could be planned for some unforeseen costs. All we’re saying is, you should be aware of all this before opting for a special repayment plan.
TIP: If you want to sell the property during the fixed interest rate, please agree on a special repayment right. If you sell your house, and repay the banks before the end of the loan tenure, the banks can charge you a repayment penalty.
With a special repayment, you can definitely pay off your loans faster but that also means you’ll have to block so much cash which you could use or invest elsewhere. If you expect that you’ll have more money then please agree on a special repayment right and must also expect to pay a higher interest rate.