Real Estate Mortgages in Germany
Germany has one of the lowest interest rates for mortgage loans in Europe. German banks issue loans to purchase property to residents and foreigners alike. The process takes one month on average and costs about 1% of the loan value.
Standard terms and conditions of mortgage lending in Germany
|Mortgage terms and conditions|
|Average interest rate||1.5–2% p.a.|
|Average loan term||20 years|
|Requirements to the borrower|
|Minimum age||18 years|
at the end
of the loan term
|35% of annual
If an investor takes out a loan
In addition, taking out a mortgage reduces your income tax as interest expenses are deducted from the income of the investor.
According to web portal Statistica, between 2013 and 2016 mortgage rates in Germany fell from 2.77% to 1.63% on average. Favorable lending conditions are stimulating demand, and construction volumes are growing. In 2016, more than 375,000 permits were issued for the construction of new residential properties – the highest since 1999.Ask Julia a question
Bank requirements for mortgage applicants
To take out a mortgage in Germany, one has to provide the following documents to the bank:
- Passport and a copy of the passport
- Application form containing
the applicant’spersonal data
- Proof of stable income (individuals are required to provide income tax certificates while corporate entities are to submit company reports)
- Documents related to the property the borrower is planning to buy – an extract from the land registry (not older than six weeks), housing regulations, photographs and description of the property
- Lease agreement (if the property is leased)
- Proof of sufficient funds to make initial payment for the property purchase
- Report on the independent appraisal for the property evaluation
All documents must be in German or translated and notarised.
What is an "application form containing
The application form should contain brief information about the borrower,
German banks are more likely to finance the purchase of a new house or apartment in a new building. Creditors become more demanding when it comes to buying property in the existing housing market – they are meticulous in assessing condition of the property and take into account its year of construction. The bank is more likely to approve a mortgage if the real estate has been leased or will be leased.
If you apply for a mortgage at a bank where you already had an account for some time, an approval will take less time as the bank will be able to quickly assess your capacity to pay back the loan.Ask Anna a question
To approve a mortgage, banks require an independent certified specialist to appraise the real estate. Payment for these services is borne by the customer. The mortgage sum is a percentage of the appraisal value or a percentage of purchase agreement price, whichever is lower.
Many banks issue mortgages only for properties above a certain value (for example, €100,000).
Interest rate and repayment
The average mortgage rate in Germany is between
As a rule, the mortgage is repaid in monthly annuity payments, i.e., repaid in equal amounts throughout the mortgage term. This includes repayment of the principal and interest charged by the bank for the mortgage issue.
A customer can negotiate for an option to repay the loan early — in this case the mortgage rate will most likely be higher. If this option is not exercised in advance, the customer will have to pay a penalty.
Customers who apply for mortgages to buy real estate are advised to take out a loan that allows for accelerated repayment of the principal. These loans allow repayment of up to 10% of the principal once a year, besides annuity payments. If the borrower regularly takes up this option, then the unpaid balance at the end of the term will be low.Ask Sofia a question
Loans with a floating rate are available as well. These rates are based on Euribor (the average rate for interbank lending). They are revised every one or two quarters and include