An annuity-based financing is a financing system based on regular monthly installments. The installments consist of 2 elements, the interest and the capital repayment. With each installment, the debt is reduced. As the overall debt reduces, the interest element reduces and the capital repayment element increases.This continues until you have paid off 100% of the loan. The higher the capital repayment, the faster the loan will be paid off and the less interest you will pay.
In Germany , Mortgages are fixed over a term of 5, 10, 15, 20 or 30 years.
At the end of the fixed interest term, there are two options:
The bank could then also re-evaluate your property and you could receive additional financing. With this money, additional investments could be made or it could be used to pay off more expensive financing whether in Germany or at home. We will continuously monitor your mortgage and we will inform you about your options in advance of your interest fixation term expiring.
Child subsidy for new home owners
The German government is now offering up to 12,000 € of subsidy per child when purchasing a home. The subsidy will be paid fora period of 10 years (1,200 € per year) for a newly built home or towards the purchase of your home or apartment. The household income must not exceed 90,000 € if you have one child and can be increased by 15,000 € for each additional child.
Find out if you are eligible here.
Building society savings plan
Established in times when interest rates were high. The basic principle is a community of savers who renounce returns during the savings phase and receive a loan of approximately the same amount after about 10 years in addition to the saved capital. The interest rate for this loan is already known when the contract is concluded. The loan must be repaid then (again )within 10 years. Since the mortgage interest rates has been very low for many years now, this instrument has somewhat gone out of fashion. The fast repayment of the loan is often connected with a high liquidity expenditure.
A building developer is a company that builds an apartment house or detached house on its own property. Prospective buyers can already buy such properties directly from the Property Developer in the planning phase. Purchasing this way can avoid high Real Estate broker commissions. The German law protects you as a buyer of such a project with the so-called broker and developer regulation. This means that you only pay for the construction work that a property developer has completed and not for the entire construction in advance.
Each bank has its own approach to determining the loan-to-value ratio. Some banks use the purchase price requested by the seller as the valuation. In this case, the calculation of the loan-to-value ratio is simple. If you set 10% equity capital in relation to the purchase price of the real estate, the loan-to-value ratio is 90%. However, many others first deduct 10% security margin and then set the desired loan amount in relation to this value. In such a case, an equity investment of 10% would still mean that the bank assumes 100% financing.
This interest often applies on new construction projects for apartment buildings with a large number of apartments. The construction period can often exceed 12 months and a large part of the loan may not have been paid by the bank to the seller. Therefore, the bank does not receive any interest from you for this part of the loan. To compensate the bank, a commitment interest is calculated from this point on until the loan is completely drawn down. The cost is from 0.15% – 0.25% per month on the unpaid amount of your loan.
Enables you to take advantage of the current interest rates, whilst still tied into a fixed rate with your current lender, by forward booking a better rate for the future. This can be with the same or different lender. This usually makes sense if you are no more than three years before the end of the current fixed interest period. The advantage of a forward loan is that you will not experience any unpleasant surprises if you want to refinance your loan, the future is already secure. It is advisable to involve a mortgage broker such as an MLP consultant of your choice.
Every property, be it a piece of land, a detached house or an apartment, has its own land register in Germany, which is kept at the responsible land registry office of the municipality. The land register is the certificate of ownership of the property. In addition to the ownership, it also indicates the rights of other institutions or persons. For example, the right of the electricity company to lay certain lines on the property. Each bank will also register the mortgage in the land register. This so-called land charge is the bank’s security for the property.
Property Purchase Tax
The land transfer tax applies to every purchase of a property in Germany and is to be paid by the buyer. Each federal state has the right to set its own tax rate.
The land charge is entered in the land register of the property. It represents the guarantee for the bank , that should the property be sold, any outstanding debt will first be repaid before the sale proceeds are distributed to the seller. The land charge registration must be conducted in front of a Notary.
Household Cash-Flow Calculation of the Bank
As part of the credit check, each bank must prepare a budget account. They need to determine your disposable income to know you have adequate liquidity to cover the mortgage repayment .For this they consider the net income of the household and its monthly expenditure.
These are subsidized loans from a bank affiliated to the German State, KfW. This bank also provides loans to first-time buyers of owner-occupied real estate and for certain construction projects that reduce CO2 emissions. In order to be able to receive such a loan you need to apply for it at the bank which is handling the main part of your mortgage. Often it is understood as a measure minimizing the risk of the main bank and the interest rate of the main loan can be reduced.
Property agent commission
The brokerage fee is different in each federal state and, depending on the federal state, is to be paid by either the buyer of the property or by the buyer and seller in half.
The notary fees are divided into approximately 1.5% for the draft purchase contract and 0.5% for the registration of the land charge, the security for the bank. The buyer of the real estate orders the notary to draft the purchase contract. Even if, due to an unforeseeable reason, the purchase of the real estate should not take place, the buyer is liable forthis notary fee.
Notary & Notarization
In Germany, only purchase contracts notarized by a notary receive legal status. Therefore, purchase price payments outside this legal framework should be avoided at all costs. The purchase contract must be written in German. However, there are also notaries who draft a contract both in German and in English. For every buyer of a property in Germany who does not speak German, it is advisable to engage a lawyer who checks the purchase contract and executes the notarization with power of attorney of the buyer.
The SCHUFA is the German credit register. All bank accounts and credit cards of a citizen resident in Germany are stored there. Likewise all credits are stored. Also mobile phone, Internet contracts and customer cards are listed there. As soon as a disturbance of a credit or several reminders due to unpaid invoices have been reported to SCHUFA, the SCHUFA score decreases. You can check your SCHUFA Score here.
A data sheet in which the borrower provides all personal details, occupation, income, costs, assets and liabilities when applying for a mortgage. It is the basis for checking your financing and absolutely essential to obtain a mortgage.
Most banks have included in their credit terms that the borrower can make an annual, optional unscheduled repayment of 5% of the original loan amount. Some banks even allow 10% unscheduled repayment. These unscheduled repayments do not lead to a reduction in the monthly loan installment, but to the loan being repaid earlier.
If you wish to repay your loan before the end of the fixed-interest period, this is usually not possible as this is only permitted contractually for a serious reason. This reason is usually the sale of the property or the death of the borrower. In such cases, a prepayment penalty will still be charged because the contract (fixed interest) has been broken by the borrower. In this case, the bank calculates the loss incurred by the borrower. There is a legally prescribed calculation method for this. This method takes the following parameters into account: Loan amount at the time of repayment, time until the end of the fixed interest period, reinvestment interest for this amount and this time in German Federal Treasury bonds. The difference to the interest rate agreed in the loan agreement is the bank’s loss, which must be compensated.