Refinancing with Variable Interest Rates: How to Secure Lower Payments
20 Jul 2025
3
Minutes
Katrin Straub
CEO at nextsure
Interest rates for variable loans are rising, making your monthly payments unpredictable. Debt restructuring can eliminate this risk and reduce your financial burden by hundreds of euros per year. We show you how to approach the review and which steps are crucial.
The topic in brief and concise terms
Loans with variable interest rates can be terminated with a notice period of only three months, according to § 489 of the German Civil Code (BGB).
There is no early repayment charge incurred when settling a variable loan early, which makes switching easier.
Refinancing to a fixed-rate loan offers long-term planning security and can reduce interest costs by several thousand euros.
Risk Analysis: Why Variable Interest Rates Are Becoming Expensive Now
Variable interest rates are directly tied to reference rates such as the EURIBOR, which strongly responds to the monetary policy of the European Central Bank (ECB). Every ECB rate increase of, for instance, 0.25 percentage points can directly affect your loan rate. For a loan amount of 200,000 euros, this means an additional burden of 500 euros per year. Many borrowers underestimate that the rates can adjust every three months, making long-term financial planning difficult. Therefore, close monitoring of the current development of mortgage rates is essential. The uncertainty about future rate adjustments makes checking for a refinancing option an important step in risk minimisation.
Your legal rights: Notice periods and the legal situation
The good news for everyone with a variable loan is the high flexibility when it comes to termination. According to § 489 paragraph 2 of the German Civil Code (BGB), you can terminate a loan with a variable interest rate at any time with just three months' notice. Unlike fixed-rate loans, when you pay off a variable loan early, there is no prepayment penalty, as the interest adjustment prevents any interest loss for the bank. This legal regulation gives you the freedom to quickly react to interest rate changes and initiate a refinancing with another bank. The cancellation must be made in writing, preferably by registered mail, to verify timely receipt. This clears the way for calculating the potential savings through a new loan.
Identifying Savings Potential: A Concrete Example Calculation
The interest savings through refinancing can best be illustrated with a practical example. Let's assume you have a variable loan with an outstanding debt of 150,000 euros and a current interest rate of five percent. You find an offer for a fixed-rate loan over ten years at three percent. The annual interest savings in the first year is already 3,000 euros. Here's a direct comparison of the terms:
Old Loan (variable): Interest rate of five percent, initial monthly interest burden at 625 euros.
New Loan (fixed): Interest rate of three percent, initial monthly interest burden at 375 euros.
Monthly Savings: 250 euros.
Annual Savings: 3,000 euros.
Over an interest period of ten years, the savings add up to several tens of thousands of euros. Even after deducting minor costs for the transfer of the mortgage, about 200 to 300 euros, a significant financial advantage remains. A switch to a new contract is thus often a worthwhile investment. These figures show how important an accurate comparison is for your finances.
The Path to Refinancing: Four Clear Steps to Success
A successful debt restructuring follows a structured process consisting of four key phases. By following these steps, you ensure that you achieve the best possible outcome and do not overlook any important details. Here's how to proceed:
Analyse conditions: Check your existing loan agreement for the exact remaining debt, the current interest rate, and the three-month notice period.
Compare offers: Obtain at least three comparison offers for a new fixed-rate loan. Pay attention to the effective annual interest rate.
Cancel the old loan: Submit the written cancellation to your old bank as soon as you have decided on a new offer.
Organise settlement: The new bank receives a settlement authorisation and handles the transfer of the remaining debt to the old bank, which significantly simplifies the process for you.
This structured approach helps you keep track and avoid pitfalls that can occur with a consolidation of loans.
Expert tips for construction financing: Plan long-term
In a mortgage with a variable interest rate, planning security is even more crucial as it involves large sums and long terms. Refinancing protects you against the risk of rising interest rates for the next ten to fifteen years. Our expert tip: If you expect interest rates to fall in the coming years but need immediate security, a fixed-rate loan with a shorter term of five years can be an option. Also, check the possibility of special repayments in the new contract to reduce your outstanding debt more quickly. For anyone planning to refinance in the future but wanting to secure today's interest rates, a forward loan is a smart solution. This allows you to lock in a fixed interest rate for your follow-up financing up to 60 months in advance. A careful review of your options is key to sustainable financing.
Act now and create financial security
Reviewing a refinance of your loan with variable interest rates is more than just financial optimisation – it's a crucial step towards greater stability and control over your finances. The current interest rate trends indicate that waiting entails significant risks. With a notice period of just three months and no early repayment penalty, the hurdles for a change are low. Take this opportunity to free yourself from unpredictable interest rate adjustments and save thousands of euros. Professional advice can help you navigate potential pitfalls and find the best offer for your situation. At nextsure, we discreetly assist you in analysing your options. Request an individual risk analysis now: Have your financing situation examined free of charge and receive specific optimisation suggestions.
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 Act on Credit Institutions (KWG) as a PDF, which regulates the legal framework for credit institutions in Germany.
The Landesrecht Baden-Württemberg offers access to specific regulations or laws in the financial sector.
The Deutsche Bundestag provides a PDF file that may 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 in detail the loan redemption, 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 isn't a single deadline that you might miss. You have the right to cancel at any time with a three-month notice period. It's different with fixed-rate loans: if you miss the cancellation deadline at the end of the interest period, the loan often automatically converts into a more expensive, variable-rate loan.
What costs are involved in refinancing?
In the case of refinancing, there are usually no fees for terminating the old variable loan. If the loan is secured by a land charge (e.g., a building loan), notary and land registry costs will arise for the assignment of the land charge to the new bank. These are usually between 200 and 300 euros.
Can I consolidate multiple loans into one?
Yes, refinancing is a great opportunity to consolidate multiple existing loans, such as an overdraft and an installment loan, into a single loan. This not only improves your financial overview but often also reduces the average interest burden.
How do I find the best deal for a debt rescheduling?
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 professional advice to understand all contract details.
What is the 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 each other. For a variable loan, the 3-month or 6-month EURIBOR serves as the benchmark to which your interest rate is regularly adjusted. If the EURIBOR rises, your loan rate will also increase.
Will the new bank handle the entire process?
Yes, generally, the new bank takes care of the entire process of paying off the old loan. After signing the new loan agreement, you grant the new bank a power of attorney for the settlement. The new bank then contacts your old bank, requests the exact remaining debt as of the key date, and transfers the amount.
