In the case of agreed maturities and installment loans, premature termination is possible in principle, however, a prepayment penalty can be levied by the lender. Detailed information can be found in the article on canceling credit. Read these explanations in peace so you will not lose money when you cancel your loan. We have provided you with two templates for a notice of termination. Of course, there are other situations in which you can cancel a loan early.
Advance payment template
Anyone who has ever dealt with real estate finance will surely stumble across the term prepayment penalty. The following table explains what this means and what needs to be considered in terms of early repayment: A construction loan is based on a loan agreement between the borrower and the lender. In this contract, among other things, the amount of the loan, the terms and the interest rate are set.
However, unlike a conventional loan, which a debtor can usually repay with a corresponding one-off payment, it is not possible to repay the loan prematurely with a construction loan. A right of the borrower to early repayment of mortgages exists if he sells the object to be financed.
In addition, the borrower may terminate the loan agreement early if the object to be financed is to secure a further volume of credit that grants the former the additional lender. In the event of early repayment, the lender may claim a penalty for early repayment. The lender replaces with this penalty the disadvantage caused by the loss of interest.
If there is no legal claim of the borrower for termination, but he still wants to repay the loan volume before the end of the contract period, the lender must be in agreement. Although most banks give their consent in such cases, they also charge a prepayment penalty. However, in this context, from a borrower’s perspective, it is somewhat difficult and annoying that the previous court rulings allow fees that are significantly above the lender’s actual interest loss loss.
Amount of the prepayment penalty
However, there is a maximum limit, so that the amount of the prepayment penalty may not exceed twice the actual loss incurred. However, the lender has no right to early repayment if the borrower terminates the loan relationship after the end of the fixed interest period. For example, if the interest rates are set at ten years, the borrower can liquidate the loan without compensation to the lender within six months of the end of those ten years.
The fixed interest rate with a remaining term of ten years is payable from the date of full disbursement of the loan to the borrower. In general, prepayment penalties are a problem that regularly affects the judiciary. In principle, the financial institutions are required to disclose, which presupposes that the borrower is in a position to track the calculation of the compensation for default.
Even if the reimbursement is controversial, the borrower should pay off the required amount first. However, the payment should be made with the note that the borrower pays the repayment amount or pays the required amount of money after arithmetical review. The payout ensures that the lender grants a permit to remove the liens from the cadastre.
The borrower can then present the bill to an expert who examines it during a mathematical examination. If you would like to terminate your construction financing ahead of time, you will find a model letter with which you can apply for a settlement of the prepayment penalty with your lender: Dear Shareholders, please send Give me a detailed invoice for the early repayment of the building loan.
The calculation should include at least – the reinvestment interest including origin and timing, – the expenses saved for the administration, – the amounts of any special repayment claims taken into account in the sense of the loss reduction. Hereby I would like to inform you that I will consider the amount of the early repayment you have set.
Therefore I can accept the invoice only with reservation. Greetings, further instructions and templates for correspondence and letters: