With the recent outbreak of the worldwide COVID-19 pandemic, many property owners with mortgages are faced with reduced incomes.
To alleviate the financial burden for consumers who have monthly mortgage payments, the German government has stepped in with a new law (Art. 240 §3 EGBGB) that was passed on 27 March 2020. The law stipulates that anybody that has closed a mortgage before 15 March 2020 has the right to pause their monthly mortgage payments (interest + repayment) for the 3-month period between 1 April 2020 and 30 June 2020.
The key requirement to pause mortgage payments is that the borrower must have suffered a reduction in their income as a direct result of the pandemic.
A qualifying income reduction for employees can be Kurzarbeit or loss of job, freelancers and self-employed consumers can argue that their revenue has dropped due to their clients canceling orders/services.
In addition, it is also necessary for consumers to prove that it is no longer reasonable for them to pay the mortgage owed due to the loss of income. In other words, the borrower has to show that they no longer can provide a reasonable standard of living for them and their dependents.
The lender and borrower should come to an agreement on how to adjust the contract, notably on the payments after June 30. If the parties cannot reach an agreement the moratorium can be extended by three months.
There is no (explicit) expectation that the loan extension is free of charge. Presumably, the same interest rate will apply. In other words, expect that the unpaid interest is rolled into the loan amount, resulting in a marginally higher repayment for the remaining loan period.
The moratorium does not need to be full: If the consumer can pay part of the loan, they can agree with the lender to do so. In practice, it would make sense to do so to avoid unnecessary conflict with the lender.
As a mortgage broker that has helped hundreds of clients sign a mortgage over the last three years, we at Hypofriend want to help all of our mortgage clients get through this financially stressful situation. This is why we have prepared a template in German that you can send to the bank that you have your mortgage with and make use of the above law to pause your mortgage payments for the 3-month period. All you have to do is to make a copy of the Google doc file, fill in the blanks with your personal details, print the document out, sign it and send it via post to your bank.
Here is the template for employees: https://docs.google.com/document/d/1GRfsQ8U0SLHxHP3R-fG7s-HtsyNCLqx-PdT4kJOjqHw/edit
Here is the template for freelancers/self-employed: https://docs.google.com/document/d/1eFpAJRmpBFSe-Wj5WKbyzKBy1VzOyYJWiCpF3TSXWDs/edit
If you have any questions about filling out the above documents, feel free to reach out directly to the Hypofriend advisor who assisted you with your mortgage. If you have more general questions about how this process works, write us a short message to firstname.lastname@example.org. We at Hypofriend hope that this temporary mortgage holiday will help you get through these difficult times.