The most important types of home loans at a glance.
When considering a purchase, you may find yourself asking the following questions:
How can I finance real estate in Germany and what financing options do banks provide?
Real estate financing is not a “one size fits all” scenario. Depending on your personal situation, income, and future plans, one type of German mortgage may be more suitable for you or may restrict you for years to come.
In this section, I will present the available property finance options, their respective features and functionalities, and the most suitable solution for your needs.
1) The Classic Repayment Mortgage (Annuitätendarlehen)
The most common and widely used type of mortgage is the repayment mortgage. You pay a fixed monthly instalment, known as the annuity, consisting of interest and repayment. The interest rate is fixed for a predetermined period, as are the repayment terms.
Each monthly payment reduces the outstanding balance. Interest is calculated on this balance, meaning the interest portion shrinks over time while the repayment portion increases. However, the monthly payment remains unchanged throughout the fixed-rate period.
At the end of the fixed-rate period, there is usually a remaining balance. This amount is known from the outset, giving planning certainty, both with reagard to stable monthly payment and also the predictable remaining debt.
Summary:
+ fixed interest rate
+ fixed interest period
+ fixed monthly payment
– remaining balance at the end of the fixed-rate term
– risk of higher interest rates afterwards
– very limited flexibility unless otherwise agreed
security > flexibility
2) The Full Repayment Mortgage (Volltilger)
A full repayment mortgage is a type of repayment mortgage where the entire loan is repaid within the fixed-rate period. At the commencement of the contract you know exactly when you’re mortgage-free.
In recognition of this maximised planning certainty, some financial institutions offer reduced interest rates.
Summary:
+ fixed interest rate for the entire term
+ consistent monthly payments until full repayment
+ no remaining balance at the end
– very limited flexibility
security > flexibility
3) The Variable-Rate Mortgage
With a variable-rate mortgage, the interest rate is not fixed but usually adjusted on a monthly basis. It is linked to a reference rate, such as the 3-month Euribor.
Should rates fall, this would result in lower interest costs. Should interest rates rise, the cost of your mortgage will increase.
If you prioritise flexibility – for instance, if you have the option of quickly repaying the loan through an inheritance, bonus, or property sale – this option might be right for you.
Summary:
+ loan can be repaid at any time
– no interest-rate security
– not offered by all banks
– stricter creditworthiness requirements
flexibility > security
4) The Interest-Only Mortgage
With an interest-only mortgage, you only pay the interest during the fixed-rate period. The loan is repaid in full at the end of the agreed term.
In order to comply with banks requirements, a repayment substitute is often necessary – such as a savings contract, a life insurance policy, or an investment plan.
For property investors, this German mortgage option can provide tax or strategic advantages.
Important: always consult a tax advisor when planning this type of loan!
Summary:
+ stable interest payments may offer tax benefits
– higher overall costs compared to a repayment mortgage
– higher risk if the repayment vehicle doesn’t grow as expected
5) Subsidised Loans (KfW and Regional Programmes)
In addition to traditional bank loans, there are government-backed options from both federal and state-level institutions.
In order to qualify, there are certain criteria that must be met – for example, creating new living space or improving energy efficiency.
Typically, KfW loans are applied for through the main financing bank. This is also the case with many state development banks that work in collaboration with selected lenders.
While the risk for KfW funds lies with the main financing bank, the investment and state banks bear the risk for the loans they grant themselves. Therefore your overall mortgage amount from your house bank may be lower and you benefit from reduced interest rates on your main financing.
Summary:
+ lower interest rates
– shorter fixed-rate options
– no additional repayment options
Note: I automatically check which subsidies you qualify for and how we can integrate them into your financing.
CONCLUSION:
There is no single right type of German mortgage – but there is a right mortgage for you. The ideal financing option depends on a number of factors, including your life situation, income, future plans and your personal need for security.
I assist you in maintaining a comprehensive overview, comparing bank offers, and identifying the most suitable financing solution for your current and future needs.
SECURE YOUR PERSONAL CONSULTATION TODAY and discover the best way to finance your home.