Real estate loans: Avoid, reduce or recover early repayment penalties

Any­one who wants to or has to re­pay their real es­tate con­sumer loan with a fixed bor­row­ing rate (real es­tate loan for short) to the bank be­fore the agreed end of the in­terest period must ex­pect the bank to de­mand pay­ment of an early re­pay­ment pen­alty. The reason for this is that the bank loses in­terest due to the early re­pay­ment, which it would have re­ceived if the loan had not been re­paid un­til the agreed date. The bank is at­tempt­ing to ob­tain com­pens­a­tion for the loss and profit it has in­curred through the re­quired pre­pay­ment pen­alty (also known as an early re­pay­ment fee or charge).

The de­man­ded early re­pay­ment fees are still very high, av­er­aging around 10 per­cent of the re­main­ing cap­ital, ac­cord­ing to a study pub­lished in Novem­ber 2019 by the mar­ket watch­dog team of the con­sumer cen­ter Bre­men. It makes many bor­row­ers shy away from res­chedul­ing their old, high-​interest real es­tate loans – des­pite (or be­cause of) the cur­rent ex­tremely low in­terest rate level.

After the com­pu­ta­tions of the con­sumer ad­voc­ate were too high in three of four of the ex­amined cases (77 per cent) the pre­pay­ment pen­al­ties de­man­ded by the banks. The de­term­ined dif­fer­ence between the pre­pay­ment pen­al­ties de­man­ded by the credit in­sti­tu­tions and those cal­cu­lated by the con­sumer cen­ter amoun­ted to an av­er­age of 5 per­cent in fa­vor of the borrowers.

No mat­ter for what reason you want to ter­min­ate the con­tract early, the ques­tion al­ways arises whether you have to pay an early re­pay­ment pen­alty charged by the bank. How­ever, as a con­sumer, you do not have to ac­cept any de­mand from the bank without a second thought, be­cause the pre­pay­ment pen­alty of­ten turns out to be un­jus­ti­fied or much too high!

For all real es­tate loan agree­ments that were con­cluded between June 2010 and today, there are ba­sic­ally two op­tions that can be used to ward off the bank’s claim. Which one comes into con­sid­er­a­tion for you de­pends on your spe­cific in­di­vidual case.

Avoiding or recovering early repayment penalties through revocation

First of all, it is ob­vi­ous to check the re­voc­a­tion op­tions of the real es­tate loan. In more than half of all loan agree­ments con­cluded after June 11, 2010, there are in­cor­rect re­voc­a­tion in­struc­tions or in­cor­rect or in­com­plete man­dat­ory in­form­a­tion re­quired by law (e.g., if the con­sumer was not prop­erly in­formed of his or her right of re­voc­a­tion). The courts have so far iden­ti­fied more than 400 in­cor­rect for­mu­la­tions in the re­voc­a­tion instructions.

If your loan agree­ment also con­tains such er­rors, the agree­ment can be re­voked and un­wound – even years after it was con­cluded. In the case of real es­tate loans, there is gen­er­ally a right of re­voc­a­tion of 14 days, provided that the re­voc­a­tion in­form­a­tion is cor­rect. If, on the other hand, the bor­rower was in­cor­rectly in­formed, he can still re­voke his con­tract bey­ond this period.

For real es­tate loan agree­ments con­cluded since March 21, 2016, how­ever, there is a re­stric­tion: Even in the case of in­cor­rect re­voc­a­tion in­form­a­tion, the re­voc­a­tion can only be de­clared ret­ro­act­ively for twelve months plus 14 days (the reg­u­lar re­voc­a­tion period)! The reason for this is the spe­cial stat­utory pro­vi­sion for real es­tate con­sumer loan agree­ments of the Ger­man Civil Code (Sec­tion 356b (2) BGB).

The suc­cess­ful re­voc­a­tion of a con­tract has the con­sequence that it is treated as if it had never ex­is­ted. This in turn means that the bor­rower does not have to pay any early re­pay­ment pen­alty or can re­cover any early re­pay­ment pen­alty already paid: If no con­tract ex­ists, lo­gic­ally no com­pens­a­tion can be claimed.

How­ever, this solu­tion is of­ten not pos­sible: Some­times a re­voc­a­tion is no longer pos­sible in terms of time, some­times the re­voc­a­tion was cor­rectly in­struc­ted or the com­plete re­versal of the con­tract proves to be un­eco­nom­ical due to the refinancing.

But even in cases where re­voc­a­tion is not (or no longer) pos­sible, the early re­pay­ment pen­alty can usu­ally be sig­ni­fic­antly re­duced and of­ten even com­pletely avoided.

The ini­tial con­sulta­tion with us is free of charge. Please feel free to con­tact us directly.