Construction financing house building & prepayment penalty

Hello everyone,

I am currently unfortunately in a little "dilemma":
We bought a condominium in 2007 (fully financed, interest rate fixed for 10 years). Due to family expansions, the favorable interest rates, and the luck of finding an ideal building plot for us, we decided last year to fulfill our dream of owning a single-family house. Fortunately, even before construction began, a buyer was found for our small condominium. After initial financing discussions with our house bank, the dreaded word "prepayment penalty" for the old apartment came up.

After checking out all banks "west of Baghdad" and making numerous interest rate comparisons, we sought another conversation with our house bank to find a cooperative solution. I already said at that time that I could well imagine staying with the (not the cheapest in terms of interest rates) house bank if we could agree on the prepayment penalty. This was promised to us... Unfortunately not in terms of the amount. Now the past is slowly catching up with me as we are about to move into our new home.

The fact is that restructuring the loan would not have been worthwhile, and I now face the "dilemma" of this prepayment penalty. Do you have any good advice for me on how to enter the negotiation now? What arguments do I have at my disposal? A good argument from my point of view is that the new loan amount taken out is now 3 times as high as the previous one. A bank/savings bank should appreciate something like that, right? After all, I have decided to leave more money with the house bank and not with the competition. In the worst case, the house bank would have received the prepayment penalty from me but no follow-up contract.

Is it, for example, possible to agree on a discount, i.e., a waiver by the bank of 20%, 50% of the prepayment penalty? Is there a rule of thumb as to what banks are willing to "sacrifice"? Have you possibly had positive experience with this yourself?

I would really be very grateful for good advice or further arguments.

Thank you very much in advance for the feedback.

Best regards, Hansi

Hi Hansi,

the informal "Du" is the usual form of address here. Welcome here.

Do I understand correctly that you finalized the new financing with your house bank without settling the issue of the prepayment penalty for the old loan definitively (=in writing)? Then it will probably be difficult to clarify this retroactively now. The bank will probably have all the trump cards (=contractual provisions) in hand.

Why should they even negotiate with you again on this topic? Because the actual repayment of the old contract is now imminent and was only announced before?

Is the new financing somehow linked to the old financing? So the new credit commitment with the repayment of the old loan as a condition? Would it possibly be worthwhile/feasible for you to service the old loan "normally" and possibly make special repayments within the contractual agreement? In other words: what is the ratio of interest savings for the remaining term to the prepayment penalty?

Best regards

Michael

The VFE was probably calculated using an active-passive comparison.

But since you have taken out a new loan, an active-active comparison would actually have been the right choice in the negotiation about the VFE.

However, since I understand you to mean that the new contract has already been concluded, you will have a hard time with the argumentation. Unfortunately, that train seems to have left the station.

Of course, one should check whether the VFE is justified in its amount and was calculated correctly. Were special repayments possible with your mortgage? The consideration of these is often forgotten when calculating VFEs. 2017 is not that far away, and since you are talking about a small loan, you might get off lightly.

Some employees (supervisors) also sometimes have the authority to waive part of the VFE. This usually revolves around 10-25%, but you have already squandered your trump card "new business" there as well.

One could have done a property swap (I can't think of the technical term). Advantage: no prepayment penalty. Disadvantage: you would have had the "old" loan for a few years until expiry and a new loan or increase from now on. However, that would have had to be clarified in advance (before the sale).

I also planned to do that - but in the end I still paid the prepayment penalty (of 9000 :(... mine was only running for 3 years out of 10).

If you want to push it, I would legally examine a case of faulty advice. In my opinion, the bank should have offered you a collateral swap.

Just to be able to present an argument once in negotiations ....

If you want to push it, I would consider legal action for incorrect advice. In my opinion, the bank should have offered you a collateral swap.

Just to have an argument to bring up in negotiations ....

Unfortunately, the collateral swap doesn't help at all. In return, you have to pay significantly higher interest rates for the remaining term of the financing. The additional expense should roughly correspond to the amount of the VE.
By the way, there is no "must".