Refinancing with variable interest rates: How to secure lower instalments
20.07.2025
9
Minutes
Katrin Straub
Managing Director at nextsure
Interest rates on variable loans are rising, making your monthly repayments unpredictable. Refinancing can eliminate this risk and reduce your financial burden by hundreds of euros a year. We’ll show you how to approach the assessment and which steps are crucial.
The topic in brief and concise terms
Loans with a variable interest rate can be terminated in accordance with Section 489 of the German Civil Code (BGB) on just three months’ notice.
When a variable-rate loan is repaid early, no early repayment charge is incurred, which makes switching easier.
Refinancing into a fixed-rate loan offers long-term planning certainty and can reduce interest costs by several thousand euros.
Risk analysis: Why variable interest rates are becoming expensive now
Variable mortgage rates are directly linked to reference interest rates such as EURIBOR, which reacts strongly to the monetary policy of the European Central Bank (ECB). Every ECB base rate increase of, for example, 0.25 percentage points can have a direct impact on your loan instalment. With a loan amount of EUR 200,000, that means an additional burden of EUR 500 per year. Many borrowers underestimate that interest rates can be adjusted every three months, which makes long-term financial planning more difficult. Careful monitoring of the current mortgage rate trends is therefore essential. The uncertainty surrounding future interest rate adjustments makes reviewing a debt restructuring an important step in minimising risk.
Your right: notice periods and the legal situation
The good news for anyone with a variable-rate loan is the high degree of flexibility when it comes to cancellation. According to § 489(2) of the German Civil Code (BGB), you can cancel a loan with a variable interest rate at any time with just three months’ notice. In contrast to fixed-rate loans, early repayment of a variable loan does not incur an early repayment charge, as the bank does not suffer any interest loss due to the interest rate adjustment. This statutory provision gives you the freedom to respond quickly to changes in interest rates and to initiate a repayment of the loan with another bank. The cancellation must be made in writing, preferably by registered post, so that you can prove it was received on time. This clears the way to calculate the potential savings from a new loan.
Uncover savings potential: a concrete example calculation
The interest savings from refinancing are best illustrated with a practical example. Let’s assume you have a variable-rate loan with an outstanding balance of €150,000 and a current interest rate of five per cent. You find an offer for a fixed-rate loan over ten years at three per cent. The annual interest savings in the first year already amount to €3,000. Here is a direct comparison of the terms:
Old loan (variable): Interest rate of five per cent, initial monthly interest charge of €625.
New loan (fixed): Interest rate of three per cent, initial monthly interest charge of €375.
Monthly savings: €250.
Annual savings: €3,000.
Over a ten-year fixed-rate period, the savings add up to several tens of thousands of euros. Even after deducting modest costs for the transfer of the land charge of around €200 to €300, a significant financial advantage remains. A switch to a new contract is therefore often a worthwhile investment. These figures show how important a careful comparison is for your finances.
The path to refinancing: Four clear steps to success
A successful refinancing follows a structured process consisting of four key phases. By following these steps, you can ensure you achieve the best possible result and do not overlook any important details. Here is how to proceed:
Review the terms: Check your existing loan agreement for the exact outstanding balance, the current interest rate and the three-month notice period.
Compare offers: Obtain at least three comparison offers for a new loan with a fixed interest rate period. Pay attention to the effective annual interest rate.
Cancel the old loan: Submit the written cancellation to your previous bank as soon as you have decided on a new offer.
Arrange the payoff: The new bank receives a discharge authorisation and takes care of transferring the outstanding balance to the old bank, which considerably simplifies the process for you.
This structured approach helps you keep track and avoid pitfalls that can arise when consolidating loans.
Expert tips for property financing: planning for the long term
When it comes to property financing with a variable interest rate, planning certainty is even more important, as large sums and long terms are involved. A refinancing arrangement protects you against the risk of rising interest rates for the next ten to 15 years. Our expert tip: If you expect interest rates to fall over the next few years but need certainty now, a fixed-rate loan with a shorter five-year term could be an option. Also check whether special repayments are possible in the new agreement, so you can reduce your remaining debt more quickly. For anyone planning to refinance in the future but wanting to lock in today's interest rates, a forward loan is a smart solution. This lets you secure a fixed interest rate for your follow-up financing up to 60 months in advance. Careful review of your options is the key to sustainable financing.
Act now and create financial security
Checking whether to refinance your loan with variable interest rates is more than just financial optimisation – it is a crucial step towards greater stability and control over your finances. Current interest rate trends show that waiting is associated with considerable risks. With a notice period of just three months and no early repayment charge, the barriers to switching are low. Take advantage of this opportunity to free yourself from unpredictable interest rate adjustments and save thousands of euros. Professional advice can help you avoid all the pitfalls and find the best deal for your situation. At nextsure, we discreetly support you in analysing your options. Request your individual risk analysis now: Have your financing situation reviewed free of charge and receive concrete suggestions for improvement.
More useful links
Wikipedia offers a comprehensive overview of debt restructuring, explaining the basics and various aspects of this financial process.
The Deutsche Bundesbank provides the Banking Act (KWG) as a PDF, which governs the legal framework for credit institutions in Germany.
The Landesrecht Baden-Württemberg provides access to specific regulations or laws in the financial sector.
The Deutsche Bundestag provides a PDF file that could contain an expert opinion or statement on finance or loans.
The Gabler Banklexikon offers a detailed definition of debt restructuring in the context of banking and finance.
Wikipedia explains loan repayment in detail, particularly the early repayment of a loan.
Wikipedia describes chain loan agreements as a special form of credit agreements.
FAQ
What happens if I miss the notice period for my loan?
With a variable-rate loan, there is no single deadline that you can miss. You have the right to give notice at any time, subject to three months’ notice. The situation is different with fixed-rate loans: if you miss the cancellation deadline at the end of the fixed-interest period, the loan often automatically converts into a more expensive variable-rate loan.
What costs are incurred when refinancing?
In the case of refinancing, there are usually no fees for terminating the old variable-rate loan. If the loan is secured by a land register charge (e.g. a property finance loan), notary and land registry costs arise for the assignment of the land charge to the new bank. These usually amount to between €200 and €300.
Can I also consolidate multiple loans into one?
Yes, refinancing is a very good opportunity to combine several existing loans, such as an overdraft and an instalment loan, into a single loan. This not only improves your overview of your finances, but often also reduces the average interest burden.
How do I find the best deal for debt refinancing?
To find the best offer, you should obtain at least three to four different offers from banks and compare the annual percentage rate. Use independent comparison calculators and consider seeking professional advice to understand all contract details.
What is EURIBOR and how does it affect my loan?
The EURIBOR (Euro Interbank Offered Rate) is the interest rate at which European banks lend money to one another. For a variable-rate loan, the 3-month or 6-month EURIBOR serves as the benchmark against which your interest rate is regularly adjusted. If the EURIBOR rises, your loan instalment also increases.
Will the new bank handle the entire process?
Yes, as a rule, the new bank takes care of the entire redemption process. After you have signed the new loan agreement, you grant the new bank a redemption authorisation. It then contacts your previous bank, requests the exact outstanding balance as at the agreed date and transfers the amount.
