How an annuity loan works
Most property loans in Germany are annuity loans (Annuitätendarlehen). You pay the same amount every month. Part of it is interest on the remaining balance, the rest is repayment. As the balance falls with every payment, the interest gets smaller and the repayment larger, while the payment stays the same.
The bank agrees a borrowing rate (Sollzins) and an initial repayment rate, both in percent per year. Together they give the monthly payment. The borrowing rate applies for the fixed-rate period, usually 5 to 30 years. After that there is usually a remaining balance that needs follow-up financing.
Monthly payment = loan × (borrowing rate + initial repayment) ÷ 12
Worked example: €300,000 at 3.5% with 2% repayment
The calculator is prefilled with an example: a €300,000 loan, 3.5% borrowing rate, 2% initial repayment, 10-year fixed rate. The rate is an example value, not a current market rate.
- Monthly payment: €300,000 × (3.5% + 2%) ÷ 12 = €1,375
- First month: €875 interest (€300,000 × 3.5% ÷ 12) and €500 repayment
- After 10 years: €93,283.70 interest paid, remaining balance €228,283.70
- At the same rate, repaid after 29 years with €177,593.08 interest in total
The last payment is smaller (€468.08) because only the remaining balance is left.
Initial repayment and term
The initial repayment rate decides how long you pay. Because repayment grows every month, even one percentage point more shortens the term noticeably. In the example, full repayment takes 29 years at 2%.
If you prefer to start from a fixed payment, switch the calculator to "Monthly payment". It then shows the initial repayment that goes with it. If the payment does not even cover the first month's interest, the balance never falls; the calculator then tells you the minimum payment.
Special repayments: what they achieve
A special repayment (Sondertilgung) is a payment on top of the monthly instalment that reduces the balance directly. Many agreements allow it up to a fixed amount per year, often 5% of the loan. Whether and how much is set out in your agreement.
In the example, a special repayment of €5,000 at the end of each of the first 10 years saves €52,271.54 in interest. The loan is repaid after 22 years and 9 months instead of 29 years. The balance after the fixed-rate period falls to €169,472.78.
Borrowing rate and annual percentage rate
The borrowing rate is the price of the borrowed money, expressed per year. The annual percentage rate (effektiver Jahreszins) under § 16 of the German Price Indication Ordinance also includes the bank's costs and the effect of monthly payments. It is stated in the offer and in the European Standardised Information Sheet (ESIS) you receive before signing.
The calculator knows no costs and therefore uses the borrowing rate. Monthly payment alone turns a 3.5% borrowing rate into 3.56% per year. Always compare offers by their annual percentage rate.
Interest in your tax return
If you rent out the property, the loan interest is an income-related expense in Annex V of the German tax return (§ 9 (1) sentence 3 no. 1 EStG). Repayment is not, as it pays back the loan. The schedule shows the interest for each loan year; for the tax return, the calendar year on your bank statement counts.
If you live in the property yourself, you cannot deduct the interest.
Common planning mistakes
- Only looking at the payment: the balance after the fixed-rate period decides how hard a higher follow-up rate hits you.
- Confusing borrowing rate and APR: only the annual percentage rate makes offers comparable.
- Starting with too little repayment: with a low repayment rate, full repayment quickly takes more than 40 years.
- Planning special repayments the agreement does not allow: without an agreement the bank can refuse them.