Early repayment penalty: Bank may not take negative interest rates into account
If a home buyer repays their mortgage before the end of the fixed interest period, the bank is usually entitled to a so-called early repayment penalty. This is intended to compensate the bank for the loss incurred if the interest rate on the loan agreement is higher than the market interest rate at the time of early repayment.
The exact calculation of a prepayment penalty has often been a point of contention between banks and their customers. Now the Nuremberg Higher Regional Court (OLG) (case no.: 14 U 2764/22) has ruled in a landmark judgment that a bank may not base its calculation on negative interest rates. However, according to our observations, most banks have done this in recent years. As a result, numerous early repayment penalties are likely to be excessive - customers are therefore entitled to a refund of their money.
Negative interest rates increase early repayment fees
Specifically, the ruling is about the fact that many banks not only calculated that they would lose all interest payments due to early repayment when determining the early repayment fee. Rather, they also assumed that they would have to pay negative interest if they reinvested the money, for example at the central bank or on the capital market.
The ECB's deposit rate for banks was below zero between 2019 and 2022 and even safe bonds often had negative yields. As a result, the early repayment penalty calculated in this way was higher than the total interest payments that the customer would have had to pay for the remaining term of the mortgage.
Compensation calculated too high
But this is wrong, the OLG Nuremberg has now ruled. The bank must reimburse the customer for the portion of the early repayment penalty that is attributable to the negative interest. In this specific case, this amounted to 2,600 of around 33,000 euros. The court's reasoning: The calculation of the compensation is limited to the loss actually suffered by the bank. This means that the early repayment penalty can only be as high as the amount of outstanding interest that the customer has to pay until the end of the fixed interest period or the earliest possible termination date for their mortgage.
As a result of the ruling, most early repayment penalties from previous years have been calculated too high by the banks. Negative interest can amount to up to 30 percent. Customers should try to get this money back. The ruling is not legally binding, as the bank has lodged an appeal with the BGH. However, by the time the highest judges reach a decision, a number of claims may already be time-barred.
Threat of claims becoming time-barred
Claims for early repayment penalties from 2020 in particular are at risk of becoming time-barred by the end of the year. Affected customers should therefore ask consumer protection organizations to check whether negative interest rates were used as the basis for the calculation in their case and whether legal action against the bank is promising.
About the author: Roland Klaus is the founder of Interessengemeinschaft Widerruf. It helps to enforce consumer rights in financial matters and is supported by specialized lawyers.
In light of the legal issues surrounding early repayment penalties and negative interest rates, advisors in the savings and cooperative banks sector should encourage their clients to carefully review their loan agreements and consider seeking legal advice if they suspect they have been overcharged. This is particularly crucial for real estate loans taken out during periods of negative interest rates, as excessive penalties could potentially lead to financial losses for borrowers.
The recent judgment by the Nuremberg Higher Regional Court has highlighted the importance of fair compensation for banks when it comes to early repayment penalties. While the case focused on a specific bank, its implications could extend to other financial institutions that have also calculated early repayment fees based on negative interest rates. Banks offering construction financing and real estate loans should closely examine their practices to ensure they are in compliance with the court's ruling.
As negative interest rates can significantly impact the calculation of early repayment penalties, it is essential for customers to remain vigilant and advocate for fair treatment. They can consult with their financial advisors, legal experts, or cooperative banks that prioritize ethical banking practices to help them navigate this complex issue. By working together, stakeholders can promote transparency and fairness in the banking sector and protect the interests of real estate loan borrowers.
Source: www.ntv.de
