A mortgage is a loan from a bank or financial institution that helps a borrower purchase a home by using the property as collateral. When you take out a mortgage, you agree to repay the money you’ve borrowed to purchase your home, plus an agreed upon interest rate. Mortgages have three main elements – the interest rate, the fixed interest period and the repayment rate. The most common types of mortgages in Germany have a 10-year fixed interest rate and have a repayment term from anywhere between 10 and 40 years. In any case, we’re here to help you determine what is the best option available to you.
How does a mortgage work?
The more money you have saved for a deposit on your home, the less you will need to borrow from the bank. Essentially, you will need to borrow the total value of your home and purchase fees, less the deposit amount. When the mortgage is drawn down, the lender (bank or other financial institution) pays for your home upfront and the terms of the mortgage agreement that you have decided on come into effect. Once the mortgage is fully paid off, the ownership of the property is transferred from the lender to you the borrower in the German land register, the Grundbuch.
What is the monthly repayment amount?
Most mortgages in Germany are annuity mortgages so you can rest easy knowing that the monthly repayment rate will remain the same for the duration of the fixed interest period. The monthly repayment amount is made up of the annual principal repayment plus the interest applied by the lender. Initially the interest portion of the repayment is high and the principal portion of the repayment is low. Over time the interest portion decreases and the principal repayment portion increases. We usually advise our clients to make use of an over payment option which is normally included within the terms of the loan. This will enable you to repay your mortgage early without incurring any additional charges. Our mortgage experts will be on hand to explain this to you in further detail.
How do you ensure you are eligible for a mortgage?
There are a number of factors involved here so let’s address them one by one:
Savings / Deposit
At a minimum you will be required to have the funds to cover the purchase fees which are made up of the Notary costs and the stamp duty. Notary costs are set at 2% of the purchase price and stamp duty can be anywhere between 3.5% and 6.5% of the purchase price. Estate Agent’s fees can be anywhere between 3.57% and 7.14% of the purchase price depending on what state the property lies in. Based on this, you would require between 5% and 16% of the purchase price assuming that you were borrowing 100% of the property value. Loans above 100% basis are occasionally granted on a case by case basis under exceptional circumstances.
Income
Your disposable income must be enough to cover the mortgage repayments in addition to your living expenses. If you are currently renting, this expense will not be included in your projected income calculation because it is assumed that you will no longer be renting once you’ve purchased your new home.
A good SCHUFA score
Your SCHUFA score is the equivalent of your credit rating in Germany. Generally, a SCHUFA score of 90% or above is considered to be a good one.
Relevant documentation
Each bank has their own criteria and document list so once you have received your personalized quote from us, we will provide you with the final list. Bearing this in mind, we have prepared the below list of the documentation that would generally be required.
- Passport / ID Card
- Residence permit
- Payslips
- Bank statement
- Income tax assessments from your home country
- Certificate of wage tax deduction
- A number of documents related to the property itself, which can be obtained from the Seller or Estate Agent.
For further detail on this check out our comprehensive document checklist.
How do you get the right mortgage?
Selecting the right mortgage depends on your financial situation and your goals. Our mortgage calculator will help you estimate the loan amount and the monthly repayment value that you can afford over the course of your mortgage term. Our expert mortgage advisors are on hand to guide you through the process so why don’t you get started now and open the doors to your future.
