Mortgages in Germany
If you’re reading this article, you’re probably considering buying an apartment or house in Germany but don’t know where to begin. You want to know what your options are, what the interest rate is, if there are subsidies or special conditions for non-residents, and more.
This article will explore all the ins and outs of the mortgage process, so hopefully, by the end, you’ll have all the knowledge you need to proceed with getting your German mortgage.
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Terms you should know
We at Loan Corp understand the challenges of contracts, which is why we’ve put together this short guide to important terms you must understand to get a mortgage in Germany.
The first term you should know is darlehensbetrage, meaning the principal amount or how much credit you’d like to take from the bank to cover most of the purchase price.
The following term you should know is tilgung, which we know as monthly mortgage payments. In Germany, it’s often not mandatory to complete the total amount during the mortgage period. The next is sollzinssatz, which means interest rates.
You should also know dauer der sollzinsbundung. This is the duration of your mortgage period or fixed interest period. Remember that the longer the period, the higher the interest rate.
Sondertilgung, directly translating to “special payment,” is the amount you may pay, free of charge, to reduce the length of your loan. And finally, restchuld, which is the principal amount left at the end of the credit period.
The situation in Germany
Germany is a fantastic place to purchase property, primarily because property prices have remained low for many years. The unusual part is that despite this, nearly 60% of the population rents rather than purchases. Ten-year tenancy agreements are standard.
But you can imagine, with the international interest, that property demand is relatively high, and in fact, it outweighs supply. This means it’s essentially a seller’s market, and it’s not uncommon to have to pay a reservation fee to get priority.
In Germany, you can technically borrow up to 100% of the property value as a resident. But, you might have to cover expenses like transfer fees with your equity. However, it’s a bit different if you’re a non-resident.
Getting a mortgage in Germany as a non-resident
As a non-resident, you’ll have to put down quite a down payment if you’re going to get yourself property. German residents typically get a loan-to-value (LTV) ratio, which compares your mortgage loan with the property value of around 80%.
As a non-resident of Germany, you’ll be limited to 55% to 60% LTV and capped at three times your income. In the UK, this is 4.5-6 times your salary.
What you’ll need
To get yourself a German mortgage, you’ll need the following:
- Three months of payslips.
- Three to six months of bank statements.
- If you’re self-employed, your balance sheet and profit-and-loss statements for the last two years.
- Your previous tax assessment.
- Your pension information.
Each bank has its requirements, and these criteria may vary. They’ll also check your credit history to assess your trustworthiness and reliability.
Types of mortgages available in Germany
Considering your options? Here’s our list of the available mortgages in Germany.
Annuity mortgage
These are fixed interest rate loans generally between five and 30 years in duration. With annuity mortgages, your payments remain the same throughout the period.
Although, initially, you pay mostly interest. Later, the interest decreases and repayment towards your loan increases.
Lenders let you set your monthly payment amount between 2-10% yearly. You can also add lump sums to this amount, to a certain agreed-upon percentage, without any fees.
The advantage of a German annuity mortgage is that it’s a stable plan allowing for capital repayment when you have money. However, it’s a relatively long repayment period, and if you don’t pay it after the contract ends, your new mortgage may have a higher interest rate.
Full-repayment mortgage
For a full-repayment mortgage, you submit a set monthly repayment rate and interest. The difference here is that you specify the length of time after which you’d like to have repaid the mortgage in full. Lenders will adjust your monthly payment accordingly.
This is a fantastic option if you can afford it, as it saves on interest payments. However, it’s not great if you can’t afford a high monthly repayment.
Interest-only mortgage
This kind of German mortgage deal is usually used for buy-to-let properties where you pay only the interest monthly. However, the entire amount is due at the end of the mortgage. It’s a great choice because of its low monthly payments, although the interest is often higher than the standard annuity mortgage.
Building society mortgage
This type of mortgage is tied to a savings account, and typically you’ll experience low-interest rates over the long term. Here you can deposit money into your savings account until you can afford a mortgage or use a specific savings account to submit payments once your mortgage is approved.
Be careful here, however, as there are penalties for ending the contract earlier. You’ll also be in it for the long haul.
Variable rate mortgage
The interest rate on variable-rate mortgages is adjusted every three months, which reflects the current rates of the European Central Bank. So while it gives you an excellent opportunity to take advantage of low-interest rates, you will also be subject to high-interest rates. Additionally, it’s pretty hard to plan adequately because of these inconsistencies.
At least these mortgages are flexible, and borrowers are allowed to make large payments without penalties. For example, you may even combine a variable-rate mortgage with a fixed-rate mortgage.
The typical length of a mortgage in Germany
Typically the average mortgage in Germany lasts between 25-30 years and usually has fixed interest rates for the first few years. You might also find that you can have fixed interest rates for longer – sometimes up to 30 years – for a higher overall rate.
In addition, interest rates in the country are currently among the lowest worldwide, at just 1-2% each year.
Borrowing from international lenders (like us)
This is a perfectly viable option and might be a good choice if any of the below apply to you:
- You’re not comfortable signing a contract in German.
- You’re not quite fluent in German.
- You don’t want to pay translator fees.
Additionally, if you lend from a mortgage lender in your country, you might have a better mortgage option with improved interest rates.
Financing options
There are a couple of additional financing options that you can consider to help you with your mortgage and to make it possible for you to get your dream home finally.
Housing-and-savings-contract
You can get a housing-and-savings contract, or bausparvertrag in German, that combines a real estate loan with a savings agreement. This is between you and a specialized credit institution.
It’s perfect if you don’t quite have enough savings and would like to secure the current interest rate. During times of rising interest rates, this is an excellent strategic decision. Unfortunately, these contracts have low savings returns and high closing fees.
Kreditanstalt für Wiederaufbau (KfW)
The KfW helps by supporting purchases for residential properties. It’s a public bank that mainly helps first-time homeowners. They’ve got a variety of subsidy programs and can even improve your current loan conditions from your bank.
Wohn-Riester
If you’re willing to, you can use your Riester pension savings as a good downpayment for your mortgage, which applies to all properties in the European Union. It won’t be a lot, though – and frankly, it’s a lot of work to get it going.
Contact us for help
Still not sure about mortgage loans in Germany? Get hold of us for more information and to see how we can help you. Just fill in your details for a quote, and a mortgage advisor will contact you.
Popular FAQs
Do people get mortgages in Germany?
Yes, people do get mortgages to purchase property in Germany. However, non-residents will have to pay a significant deposit, whereas residents can expect loans of between 80-100%.
Is it difficult to get a mortgage loan in Germany?
Like in other countries, the difficulty of getting a mortgage depends on many variables. Getting one will be more challenging if you don’t have a low income, a bad credit rating, or even if you’re a first-time buyer.
Is it worth purchasing a house in Germany?
It’s definitely worth purchasing a house in Germany and property prices have remained relatively low over the years. The mortgage interest rates have also declined steadily over the years: a promising sign for buyers, so if you are interested, contact us now for more information to get started.