Forward Loans: Securing Tomorrow's Interest Rate Today

How does a forward loan work?

It runs: fixed interest rate period of an existing loan in two, three or four years, the follow-on finance can already be fixed today: interest rate, term and installment are fixed from the conclusion of the contract, is paid out only on the transfer date. For the waiting time (forward period), the lender requires a surcharge – usually on the market in the order of 0.01 to 0.03 percentage points per month advance. Important: There is a duty of acceptance. The loan must be taken off on the agreed date, even if the market interest rates have fallen by then – otherwise there is a threat of non-declaration compensation.

When is the interest rate hedge worthwhile?

• Expectations of rising interest rates: the classic case – hedge today’s conditions against future interest rate rises.
• Calculation security: property investors fixes the debt service of entire portfolios and thus stabilizes DSCR and distributions.
• Tight business plans: If an increase in interest rates would tip the economy, the surcharge is a cheap insurance.

Forward loans in professional practice

For commercial property investors, the forward loan is a building block of Refinancing strategy – Next to loan renewal and remortgage. An early market comparison strengthens your position: approaching several lenders 24–36 months before expiry creates time for negotiation. We organise this process for properties and portfolios with financing requirements from €750,000. This should not be confused with the Forward funding, a transaction model for project developments.