Refinance your construction loan and save interest: your route to a lower rate
11/06/2025
12
Minutes
Katrin Straub
Managing Director at nextsure
Your property finance still has years to run, but current interest rates are significantly lower than when you took it out? Refinancing can reduce your monthly payments by hundreds of euros and significantly lower the overall cost of your property. This article shows you how to have the potential interest savings on your home loan assessed and put into practice successfully.
The topic in brief and concise terms
Refinancing is worthwhile if the interest savings outweigh the costs of the early repayment penalty and land registry fees.
After ten years’ term, you can terminate your construction loan free of charge with six months’ notice under Section 489 of the German Civil Code.
A forward loan secures today’s interest rates for a refinancing in up to five years and protects you against interest rate rises.
Reduce interest costs: When refinancing really pays off
Debt restructuring makes sense when the interest savings exceed the costs incurred. Even an interest advantage of 0.5 percentage points can mean savings of more than EUR 7,500 over ten years on a remaining debt of EUR 150,000. The key is comparing the old interest rate with the current market conditions. Many borrowers can reduce their monthly instalments by more than EUR 100. Finding a favourable mortgage is the first step. The biggest opportunity often arises after the fixed-rate period ends or through the statutory right of cancellation. This right is the key to fee-free refinancing after ten years.
Use your statutory right to terminate after ten years
The German Civil Code (BGB) gives you a powerful tool: the special right of termination under Section 489 of the BGB. You can terminate any loan agreement with a fixed interest rate period after ten years, with just six months’ notice. The ten-year period begins on the day the loan is paid out in full. This termination is completely free of charge for you; no prepayment penalty is due. This is the ideal opportunity to plan an early refinancing of your property finance. Please note the following points for a successful termination:
The termination must be made in writing and signed by all borrowers.
The ten-year period starts after the loan has been paid out in full, not from the date the contract is signed.
Subsequent financing arrangements and forward loans can also be terminated under this section.
Plan the new financing early so that you can switch without interruption after the notice period.
But what happens if you do not want to or cannot wait ten years?
Early repayment penalty: calculating the cost of early repayment
If you cancel before the end of the fixed-rate period or the ten-year term, the bank will charge a prepayment penalty. This fee offsets the bank's loss of interest and can quickly amount to €5,000 to €15,000. The calculation is complex and prone to errors; consumer advice centres find mistakes in more than half of all calculations. Always have your bank's claim checked by an independent party. The amount depends on the outstanding balance, the remaining term and the difference in interest rates. An online prepayment penalty calculator gives you an initial estimate. To secure interest rates for the future without having to refinance immediately, forward planning is a sensible approach.
Interest rate protection for the future: creating planning certainty with a forward loan
A forward loan allows you to secure today’s potentially low interest rates for a future refinancing. You can take out such a loan up to 60 months in advance. For each month of lead time, you pay a small interest surcharge, usually between 0.01 and 0.03 percentage points. This protects you against rising interest rates and gives you planning certainty for your follow-up financing. Taking out a forward loan is particularly sensible if you can refinance within the next one to five years and expect mortgage rates to rise. Monitoring the current mortgage interest rate trend helps with the decision. With the right financing strategy in mind, the concrete refinancing process follows.
Process guide: Four steps to a cheaper building loan
Having a refinancing of your construction loan checked and carried out to save on interest follows a clear process. With a systematic approach, you secure the best terms. Here's how to proceed:
Analyse the existing contract: Check your contract documents for the remaining fixed-interest period, the amount of the remaining debt and the notice periods.
Obtain quotes: Obtain at least three comparison quotes for your follow-on financing. Take the effective annual interest rate and any special repayment rights into account.
Weigh up the costs: Compare the interest savings with the costs. These include any early repayment charge as well as notary and land registry fees for the assignment of the land charge, which amount to around 250 euros for a land charge of 100,000 euros.
Switch banks: Once you have made your decision, cancel the old contract and take out the new one. The new bank coordinates the loan redemption with the old bank and the re-registration in the land register.
In addition to this basic process, there is expert knowledge that can save you extra money.
Expert tips: Avoid hidden costs and maximise savings potential
To get the maximum out of your refinancing, you should pay attention to the details. Our expert tip: Insist on an assignment of the land charge rather than an expensive deletion and re-registration. An assignment often costs only 20 to 30 per cent of the fees for a complete re-registration, which can mean savings of more than 700 euros for a land charge of 100,000 euros. Also check whether the new bank covers the costs of the land register amendment – some providers reimburse these fees. An refinancing loan with instant approval can speed up the process. With well-planned property financing and these tips, you will be ideally positioned.
Request an individual risk analysis now: Have your insurance situation checked free of charge and receive specific suggestions for optimisation.
More useful links
Wikipedia: Explains the basics and details of construction loans.
Bundesbank: Provides data and analyses on interest rates in the money and capital markets.
ifo Institut: Provides an article on the downturn in the property market.
Bundesfinanzministerium: Provides a report on the financial market.
FAQ
What is the difference between refinancing and follow-on financing?
A follow-on financing arrangement governs refinancing after the fixed-rate period ends, either with the existing bank or a new bank. Refinancing specifically refers to switching to a new bank, often even before the fixed-rate period ends.
How does the assignment of the land charge work?
With an assignment, your old bank transfers the existing land charge to the new bank. This is notarised and recorded in the land register. It is significantly cheaper than the deletion and re-registration of the land charge.
Can my old bank refuse the refinancing?
If you make use of your special right of termination under Section 489 of the German Civil Code (BGB), or if the fixed-interest period expires, the bank cannot refuse the refinancing. In the event of early termination outside these provisions, the bank’s consent is required, and it makes this conditional on payment of the early repayment charge.
Is refinancing still worthwhile with a short remaining term?
The shorter the remaining term, the lower the interest savings are usually. Refinancing is usually only worthwhile if the savings from the new, lower interest rate clearly outweigh the costs incurred for fees and any compensation payments.
Do I need to have equity for a debt restructuring?
No, no additional equity is required for the refinancing itself. The new bank finances the remaining outstanding debt. However, equity can help you obtain better interest terms from the new bank.
How long does a debt restructuring take?
The entire process from obtaining a quote to the final transfer in the land register usually takes between four and eight weeks. However, planning should begin several months before the desired transfer date.
