So the VFE comes into force as soon as the loan is repaid in full to the bank. Subsequently, the borrower receives a claim from the lender to pay the prepayment penalty. Only when this has been fully paid off, the loan agreement is considered dissolved. However, the bank can refuse the early repayments and thus the termination of the contract – whether the borrower this desire is guaranteed depends on the goodwill of the bank.
But if the mortgage loan is used and you need to sell your home, the bank must cancel the contract. The VFE can still grab here. The same applies if the loan amount is increased: borrowers can apply to their lender to increase the loan amount. If this application is rejected by the bank, the borrower may immediately settle the existing loan.
When the bank quits
If borrowers can no longer pay their monthly installments, the bank can terminate the loan agreement. Here many financial institutions demand a so-called “settlement damage” – a form of the VFE. According to the BGH in a case of 2013, however, the bank may not demand this damage, but only a maximum damages of 2.5 percent above the base rate.
It always makes sense to get in contact with the lender at an early stage: This clarifies whether the contract may be terminated prematurely and how high the VFE is at all. Because: Since the sum of this compensation can certainly reach a five-figure range, it is not always worthwhile to pay off the loan earlier – if necessary, the loan including the prepayment interest is more expensive.
Compensation must be paid for both mortgage lending and traditional installment credit. However, it is of course much lower in installment loans, since the terms are shorter and the loan amount is smaller. Usually, however, the VFE is agreed for long-term loans, ie for loans with a term of at least four years.
Prepayment Compensation for Real Estate Loans
Although the VFE also applies to mortgage lending – but here are slightly different rules than the normal installment loan. Because real estate loans are secured by real estate liens: The bank can thus foreclose the property if the monthly installments are no longer paid. By the way: Even with loans from KfW the prepayment penalty must be paid.
- Arrange for special repayments
Make sure that special unscheduled repayments have been agreed in your loan agreement. This will allow you to pay additional installments over the agreed monthly installment during the term of the contract, thereby paying off the loan amount more quickly. If these repayments are also free of charge, there are no fees for them. The prepayment penalty can therefore be circumvented through special repayments.
- A higher repayment rate
The higher the repayment installment, the more expensive the monthly installments. However, those who can afford this have the opportunity to agree on a shorter term and to be debt-free earlier. The repayment installment can also be subsequently increased with numerous loans.
- Save during runtime
If you cancel your loan after a term of ten years, the VFE does not have to pay – the fixed interest period has usually expired here. Therefore, it is worthwhile to save within the ten years to avoid follow-up financing. If sufficient capital could be invested, this can be used to pay off the remaining debt completely.