Interest Rate (Zinssatz)
The cost of borrowing money
The interest rate (Zinssatz) is the annual cost of borrowing money for your mortgage. In Germany, rates can be locked for 10-30 years, making them a crucial component of long-term investment planning.
Current Market Context
As of 2024, German mortgage rates for investment properties typically range:
- 10-year fixed: 3.8% - 4.5%
- 15-year fixed: 4.2% - 4.8%
- 20-year fixed: 4.5% - 5.2%
Rates depend on loan-to-value ratio, income, creditworthiness, and property type
How Interest Rate Affects Your Returns
€450,000 Property with 90% Financing (€405,000 loan):
At 3.5% Interest Rate:
- • Annual interest: €14,175
- • Monthly payment (2% amortization): €1,856
- • Tax savings (42% bracket): €5,954
- • Net interest cost: €8,221/year
At 5.0% Interest Rate:
- • Annual interest: €20,250
- • Monthly payment (2% amortization): €2,362
- • Tax savings (42% bracket): €8,505
- • Net interest cost: €11,745/year
A 1.5% rate difference = €3,524 more annual cost (even after tax deduction)
Fixed Rate Periods (Zinsbindung)
German mortgages offer uniquely long fixed-rate periods:
- 5-10 years: Lower rates but refinancing risk
- 15-20 years: Balance of rate and security (most popular)
- 25-30 years: Maximum security but higher rates
Interest Deductibility: The Silver Lining
Unlike personal loans, all mortgage interest on investment properties is tax-deductible. This means your effective interest rate is 42% lower if you're in the top bracket. A 4.5% mortgage effectively costs you 2.6% after taxes.
When to Lock in Rates
- Rates are low: Lock for 20+ years to protect against future increases
- Rates are high: Shorter lock (10 years) with option to refinance when rates drop
- For rentals: Longer locks provide cashflow predictability
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.
Mortgage Interest(Hypothekenzinsen)
Mortgage interest (Hypothekenzinsen) is the interest portion of your mortgage payment. For investment properties, it's fully tax-deductible as a rental expense.
Financing Costs(Finanzierungskosten)
Financing costs include mortgage interest, loan origination fees, and bank charges. Interest is tax-deductible for investment properties in Germany.