Mortgage (Hypothek / Immobiliendarlehen)
Financing your property purchase
A mortgage (Hypothek or Immobiliendarlehen) is a loan secured by real estate. In Germany, mortgages work differently than in many other countries, with unique advantages for long-term investors.
Key Features of German Mortgages
- Long fixed-rate periods: 10, 15, or even 20+ years with locked interest rates
- Annuity loans (Annuitätendarlehen): Most common type with fixed monthly payments
- Slow amortization: Typical 1-3% annual repayment rate means 30-50+ year payoff
- Interest-only options: Available but less common
Real Example
€450,000 Property with 90% Financing:
- Purchase price:€450,000
- Down payment (10%):€45,000
- Loan amount:€405,000
- Interest rate (fixed 15 years):4.4%
- Repayment rate:1.5%
- Monthly payment:€1,994
Of this payment: €1,485/month interest (tax-deductible) + €509/month principal
Advantages for Investors
- Interest is tax-deductible: For investment properties, all mortgage interest reduces taxable income
- Leverage amplifies returns: Control €450k of property with €45k down
- Rate certainty: Lock in rates for 15+ years, protecting against rising rates
- Inflation hedge: Repay with devalued future euros while property appreciates
Typical Requirements
- Down payment: 10-30% of purchase price
- Closing costs covered: Must pay the full 10-15% closing costs in cash
- Income verification: Proof of stable income (employment, business)
- Credit check: Clean Schufa record required
Interest Rate Lock Strategy
Many investors lock in 15-20 year fixed rates when rates are low. This provides certainty and protection, especially valuable for rental properties where stable costs mean predictable cashflow.
Related Terms
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%.
Down Payment(Eigenkapital)
Eigenkapital (equity/down payment) is the cash you put down when purchasing property. German banks typically require 10-30% of purchase price plus closing costs (another 10-15%).
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.