Comparing Mortgages Types in Germany

For many people, moving into their own home is one of the most important moments in their lives. The associated financing process is fundamental and often shapes the daily lives of new homeowners for decades to come.

If you are also considering taking the step into becoming a homeowner, in these times of low interest rates and high rents, we have compiled the most important clues and tips for suitable financing in this article.

How can I finance my home affordably?

Anyone who buys an apartment or builds a house usually needs a loan in order to finance it. For such purposes, banks grant mortgages. These are large loans that are used exclusively for real estate financing and thus have low interest rates.

What kind of real estate loan suits me best?

If you intend to fulfill your dream of owning your own home, the next step is to calculate how much you need and what kind of loan you need. Finding the best financing solution for you depends on your preferences including: installment amounts, security, interest rates and which financing is most favorable for your project.

Annuity loans

Zinsen: Intertest Rate

Tilgung: Repayment

Ratenzalhung (Linear): Total installment (constant)

An annuity loan is the most common type of home mortgage for private financing. Here you pay off a fixed monthly installment over a certain period, which can be broken down into the repayment installment and interest. At the beginning, an initial repayment amount is low, which steadily rises each year as the interest rate part falls. This is due to the ever decreasing remaining loan amount on which the interest rates are based.

Annuity loans are particularly safe to plan, since you have constant expenses and you do not have to worry about interest rate changes. The disadvantage of annuity loans is that you cannot benefit from falling interest rates as long as your interest rate is fixed. In addition, unscheduled additional repayments are usually limited or only possible for a fee.

Amortisation loans

Zinsen: Intertest Rate

Tilgung: Repayment

Ratenzalhung (Sinkend): Total installment (decreasing)

The monthly repayment installment is calculated here by dividing the total debt by the number of months of the mortgage term. The respective interest portion is then added to this value, which then decreases proportionally over time. Repayment loans are rarely granted to private borrowers, as they have a very high financial burden at the beginning. Their advantage is the overall lower total cost of the loan, as the interest costs fall faster than with annuity loans.

TIP: There are various ways of obtaining support from the German State for home financing. You can read here about which subsidies are available in Germany.

Partial variable loans

Partial variable loans combine different loan types together. The different types are:

A combi-mortgage is a combination of a classic annuity loan and a special amortization loan. Here, part of the loan is repaid via annuities with a fixed interest rate, while the other part adjusts the interest to the market every three months.

A flexi-mortgage (also called a variable mortgage by many banks) is a loan whose interest rate adjusts every three months. They also regularly have the option of converting it into a fixed-interest loan or making free unscheduled repayments.

A cap-mortgage is also a mix of an annuity loan and a variable rate loan. With some lenders, you can also take out a pure cap mortgage without an annuity part. In contrast to the combined loan, an upper interest limit is set, thus setting the so-called cap, and upon request can also have a lower limit, the floor, above which the interest rate cannot go beneath. Special repayment options are also available here.

Flexible interest rates, which adapt more often, have advantages and disadvantages, especially in low interest periods; however, they represent above all a risk for you, since interest rates are not predictable and can drive up your monthly payments.

Comparing conditions saves you money!

Once you have gained an idea of how much of a mortgage you need and which financing solution suits you best, you can start comparing offers. Even very small differences can make a big difference!

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We are simplifying and digitalizing the mortgage process in Germany.

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