Refinance your construction loan and save on interest: your way to a lower installment
11 Jun 2025
10
Minutes
Katrin Straub
CEO at nextsure
Your mortgage is set to run for several more years, but current interest rates are significantly lower than when you signed up? Refinancing can reduce your monthly expenses by hundreds of euros and significantly lower the overall cost of your property. This article explains how to assess the interest savings on your mortgage and implement it successfully.
The topic in brief and concise terms
A debt restructuring is worthwhile if the interest savings exceed the costs of early repayment penalties and land registry fees.
After ten years, you can cancel your construction loan free of charge with a six-month notice period thanks to § 489 BGB.
A forward loan secures today's interest rates for a refinancing in up to five years and protects against interest rate increases.
Reduce interest burden: When refinancing really pays off
Debt restructuring makes sense if the interest savings exceed the costs incurred. Even an interest advantage of 0.5 percentage points can result in savings of more than €7,500 on a remaining debt of €150,000 over ten years. The key factor is comparing the old interest rate with the current market conditions. Many borrowers can reduce their monthly payment by over €100. Finding a favourable mortgage is the first step. The greatest opportunity often arises after the fixed interest period ends or through the statutory right of termination. This right is the key to cost-free refinancing after ten years.
Exercise your legal right to terminate after ten years
The German Civil Code (BGB) provides you with a powerful tool: the right of special termination under § 489 BGB. You can terminate any loan agreement with a fixed interest rate after ten years, with only six months' notice. The ten-year period begins on the day the loan is fully disbursed. This termination is completely free of charge for you, as there is no early repayment penalty. This is the perfect opportunity to plan for an early refinancing of your mortgage. Keep the following points in mind for a successful termination:
The termination must be in writing and signed by all borrowers.
The ten-year period starts after the full disbursement, not from the contract signing.
Follow-up financing and forward loans can also be terminated under this paragraph.
Plan the new financing early to enable a smooth transition after the notice period.
But what happens if you do not want or cannot wait ten years?
Prepayment penalty: Calculating the costs of early repayment
If you terminate before the end of the fixed interest period or the ten-year deadline, the bank will charge an early repayment fee. This fee offsets the bank's interest loss and can quickly amount to between €5,000 and €15,000. The calculation is complex and error-prone; consumer advice centres find errors in more than half of the calculations. Therefore, always have your bank's claim checked by an independent party. The amount depends on the remaining debt, the remaining term, and the interest rate difference. With an online early repayment fee calculator, you can get an initial assessment. To secure future interest rates without having to refinance immediately, proactive planning is advisable.
Interest Rate Protection for the Future: Create planning certainty with a forward loan
A forward loan allows you to secure today's potentially low interest rates for future refinancing. You can arrange 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 from rising interest rates and provides planning security for your follow-up financing. Entering into a forward loan is particularly worthwhile if you can refinance in the next one to five years and expect rising construction interest rates. Observing the exact current development of construction interest rates helps in making the decision. With the right financing strategy in mind, the specific refinancing process follows.
Process Guide: Four Steps to a Cheaper Construction Loan
Reviewing and executing a refinancing of your mortgage to save on interest follows a clear process. With a systematic approach, you secure the best terms. Here's how to proceed:
Analyse existing contract: Check your contract documents for the remaining term of the fixed interest rate, the amount of the outstanding debt, and the notice periods.
Obtain offers: Obtain at least three comparative offers for your follow-up financing. Consider the effective annual interest rate and any potential special repayment rights.
Weigh costs: Compare the interest savings with the costs. These include any early repayment penalties and the notary and land registry costs for the transfer of the mortgage, which amount to approximately 250 euros for a 100,000 euro mortgage.
Switch banks: After making your decision, cancel the old contract and agree to the new one. The new bank coordinates the loan repayment with the old bank and the change in the land register.
Alongside this fundamental process, there is expert knowledge that can save you additional money.
Expert Tips: Avoid Hidden Costs and Maximise Savings Potential
To make the most of your debt restructuring, you should pay attention to the details. Our expert tip: Insist on a mortgage assignment instead of an expensive deletion and re-registration. An assignment often costs only 20 to 30 percent of the fees of a complete re-registration, which can mean savings of over 700 euros for a mortgage of 100,000 euros. Also, check whether the new bank covers the costs for the land registry change – some providers refund these fees. A debt restructuring loan with instant approval can speed up the process. With a well-thought-out property financing and these tips, you are optimally positioned.
Request an individual risk analysis now: Have your insurance situation checked free of charge and receive concrete suggestions for optimization.
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: Offers an article about the downturn in the real estate market.
Bundesfinanzministerium: Provides a report on the financial market topic.
FAQ
What is the difference between refinancing and follow-up financing?
A follow-up financing arrangement manages the refinancing after the fixed interest period ends, either with the existing bank or a new one. A debt restructuring specifically refers to switching to a new bank, often even before the fixed interest period has ended.
How does the assignment of the land charge work?
When assigning, 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 deleting and re-registering the land charge.
Can my old bank refuse the debt restructuring?
If you exercise your special right of termination according to Section 489 of the German Civil Code (BGB) or the fixed interest period expires, the bank cannot refuse to refinance. For an early termination outside these regulations, the bank's approval is required, which it makes dependent on the payment of a prepayment penalty.
Is refinancing worthwhile even with a short remaining term?
The shorter the remaining term, the smaller the interest savings usually are. Debt restructuring is generally only worthwhile if the savings from the new, lower interest rate significantly exceed the incurred costs for fees and any compensation.
Do I need to have equity for refinancing?
No, additional equity is not required for the restructuring itself. The new bank finances the remaining outstanding debt. However, equity can help to obtain better interest rates with the new bank.
How long does refinancing take?
The entire process from obtaining the offer to the final transfer in the land register usually takes between four and eight weeks. However, planning should begin several months before the desired changeover date.
