Increasing the mortgage: it may be necessary in certain circumstances. If the construction costs have been calculated incorrectly or if unforeseeable difficulties arise during the development of the property, the result is an increased need for financing.
If the amount of the mortgage is not sufficient, it may be necessary to renegotiate with the financial institution. The situation is similar for urgently needed renovation or refurbishment measures that are due years after the house has been built and whose costs cannot be covered from the debtor's own funds. In such cases you can increase the existing construction financing.
Mortgage increase: how to do it?
The mortgage is a form of construction financing in which borrowed funds are provided by a financial institution. A loan agreement is concluded with the financial institution, in which the interest, term and repayment modalities are regulated.
As security for the lender, a mortgage is taken out on the house and the bank becomes a co-owner of the property. This mortgage is sealed by a notarized entry in the land register. If the debtor does not meet his payment obligations, the bank has the right to foreclose on the property and use the proceeds to settle the loan debt. More on this topic you will find in the article mortgage take up.
Increase existing mortgage
The reasons for increasing an existing mortgage are as varied as those for taking out the loan. A higher need for financial resources can occur due to calculation errors in the design of the property, unforeseen difficulties in the development of the land or the implementation of environmental requirements.
To increase an existing mortgage, the banks in germany refuse in most cases. As an alternative, a refinancing is possible by increasing the financial means through a second mortgage. This option is only available if the loan-to-value ratio for the property has not yet been reached. The maximum limit for the loan on a property is 90 percent of the loan value.
Refinancing house: costs
If you need to refinance your property, you should first talk to the bank that has already issued the mortgage loan. This credit institution has a first rank in the land register and may access the property as the first creditor if the debtor does not meet his payment obligations.
Another financial institution would be registered as subordinate in the land register and the refinancing would therefore be provided with significantly worse conditions. In addition, all construction documents, financing plans, income and assets would have to be made available to a second financial institution, which causes additional costs.
Refinancing with worse conditions
An increase of the existing mortgage is basically not possible in germany. The interest rate, term, and repayment terms for the loan are fixed, and financial institutions usually refuse to make subsequent improvements that have arisen due to increased financing needs. If the lending limit for the property has not yet been reached, subsequent financing is possible. A second mortgage can be used to increase the mortgage to up to 90 percent of the mortgage lending value.
However, the conditions are significantly worse for refinancing than for the first mortgage. In principle, the bank with which the first mortgage was taken out should be the first point of contact. Negotiations with another financial institution should only be entered into if the costs are comparatively high.
Ranking in the land register
An increase in the mortgage due to subsequent financing has an influence on the entry in the land register. The bank with which the first mortgage was taken out has a first ranking and is entitled, in the event of the debtor's insolvency, to have first recourse to the property to repay the debt. This can be done through a foreclosure sale or through receivership. The second mortgage has a lower rank.
This means that in the event of a foreclosure, the lending bank will receive the amount that remains after repayment of the residual debt to the first-ranking bank. The risk of default is much higher for the bank. For this reason, higher interest rates are charged for refinancing than for initial financing. The entry in the land register will be deleted only after the complete repayment of the loan amount including interest.