If follow-up financing for the property is needed in the foreseeable future, a forward loan, with which one can secure the interest for the future, can be the perfect form of loan. Few consumers are financially able to fully repay their real estate loan in just one round of financing in ten, 15 or 20 years. Most borrowers need another loan after the fixed interest period has expired, which then runs for just as long.
Advantages of forward loans
Forward loans, which means advance loans, allow borrowers to plan their follow-up financing if they take out a new loan in times of low interest rates, but only use it when the fixed interest rate on the first loan expires. Many forward loan providers can do this for up to 60 months in advance. But the longer the lead time, the higher the interest premium that the banks charge.
You apply for a forward loan and conclude a contract if the first round of financing is still ongoing. This way, you can secure the low interest on the second loan for a relatively small premium without having to use it immediately. However, you are also obliged to take out a forward loan at a specified time, even if the interest rate development was such that the interest rates are currently much lower than the interest rates that were secured at the time. If a loan is not taken, the customer has to pay the bank a non-payment fee, which can cost a lot of money.
If the bill works and interest rates have actually risen, the consumer has the advantage that he can use follow-up financing that has significantly better terms than is currently the case. That means the customer won the bet, because it is actually nothing else if you want to secure low interest rates with a forward loan.
Thousands of customers have recently lost the bet
But of course the customer does not always win and that is also the risk that he bears with the conclusion of a forward loan. Currently, many customers have gambled away, who had been betting on rising interest rates since 2009. Today you have to take out loans from banks that are significantly worse in terms of terms than loans that are currently being taken out.
Nobody could have known that and could not even guess that the low interest rate phase would continue for so long and that interest rates would go even lower. If you convert this into USD, many consumers suffer losses in the three- and four-digit range.
In June 2009, forward loans, which were taken out 36 months later, cost just over 5 percent interest. Today, you only pay a little over 3.1 percent for such loans. These are additional costs in USD of almost 20,000 USD with a loan amount of 100,000 USD.
A forward loan can result in high interest savings if interest rates rise. However, since you cannot look to the future reliably, it can always happen that even experts who expect interest rates to rise are wrong, as is currently the case. The other way round, it should be noted that interest rates are currently as low as never before, so it might be worthwhile today to secure these low interest rates with a forward loan in the future.