Financing Costs (Finanzierungskosten)
Interest and fees for your mortgage
Financing costs (Finanzierungskosten) are all expenses related to obtaining and maintaining your mortgage. The good news: nearly all of them are tax-deductible for investment properties.
What Counts as Financing Costs?
One-Time Costs:
- • Loan origination fees (Bearbeitungsgebühr)
- • Property valuation (Wertgutachten)
- • Loan broker commission
- • Building insurance setup
Ongoing Costs:
- • Mortgage interest (largest component)
- • Annual account management fees
- • Early repayment penalties (Vorfälligkeitsentschädigung)
Real Example: Total Financing Costs
€450,000 Property with 90% Financing (€405,000 loan):
Upfront Costs:
- Property valuation:€800
- Building insurance (annual):€450
- Total upfront:~€1,250
Annual Costs (Year 1):
- Mortgage interest (4.4%):€17,820
- Building insurance:€450
- Total annual:€18,270
Tax deduction (42% bracket): €7,673 tax savings
Net cost after tax: €10,597
Interest: The Biggest Component
Mortgage interest typically accounts for 95%+ of your annual financing costs. On a €405,000 loan at 4.4%, that's €17,820/year—but it's fully tax-deductible.
Strategic Insight: Leverage Makes Costs Worthwhile
Yes, €18,270/year in financing costs seems expensive. But you're controlling a €450,000 asset with only €45,000 down. If the property appreciates 3% (€13,500) plus rental income, you're ahead—even after financing costs.
Related Terms
Mortgage(Hypothek / Immobiliendarlehen)
A mortgage (Hypothek or Immobiliendarlehen) is a loan secured by property. In Germany, typical terms include 10-30 year fixed interest rates and 1-3% annual repayment rates.
Interest Rate(Zinssatz)
The interest rate (Zinssatz) is the annual percentage charged on your mortgage. In Germany, rates are typically fixed for 10-20 years. As of 2024, rates range from 3.5-5%.
Tax Savings(Steuerersparnis)
Tax savings from real estate come from deducting property expenses (interest, depreciation, costs) from your taxable income, reducing the amount of income tax you pay.