Key takeaways
- The standard form is the annuity loan: a constant monthly installment made up of interest and principal repayment. The initial repayment rate is often 2 to 3 percent.
- Rule of thumb for equity: pay at least the purchase transaction costs from your own funds, and ideally part of the purchase price as well. More equity usually means better conditions.
- The purchase transaction costs (real estate transfer tax, notary and land registry, plus a broker where applicable) often add up to around 9 to 12 percent of the purchase price.
- Fixed-interest period: 10 or 15 years are common. 10 years after full disbursement, you can terminate the loan with 6 months' notice under Section 489 of the German Civil Code (BGB), regardless of the agreed period.
- Condominium owners' associations (WEG) finance major works from the maintenance reserve, through a special levy or through a loan taken out by the association. With condominiums, banks also look at the WEG documents.
On this page
How an annuity loan works
The standard form of property financing in Germany is the annuity loan. The principle is pleasantly simple: you pay a constant monthly installment, the so-called annuity. It consists of two components, interest and principal repayment.
What happens inside that installment is the interesting part. With every payment, your outstanding balance falls. As a result, the interest portion of the installment shrinks over time and the repayment portion grows, while the installment itself stays constant. So year after year you pay back more of your debt, without any change in your monthly burden. Exactly this predictability is what makes the annuity loan the classic choice.
For household budgeting, this means you know precisely which installment is due each month for the entire fixed-interest period. At the end of that period, an outstanding balance usually remains, which you take care of through follow-up financing. More on that later.
One key parameter is the initial repayment rate, meaning the share of the loan amount you pay back in the first year. 2 to 3 percent is commonly agreed. A higher initial repayment rate means a higher monthly installment, but it shortens the life of the loan.
Good to know
The initial repayment rate is a real lever: set it higher and you are debt-free sooner. Many contracts also allow you to switch the repayment rate during the term. More on that below.
Equity and transaction costs: the foundation
Equity is the foundation of every financing plan. The proven rule of thumb: pay at least the purchase transaction costs from your own funds, and ideally part of the purchase price as well. Figures of 10 to 20 percent are often mentioned for this. As a general principle, the more equity you contribute, the better the conditions the bank will usually offer you.
Financing entirely without equity is possible, but more expensive and riskier. If you are considering it, calculate the monthly burden with particular caution. Whether and on what terms such financing is available is decided by the bank case by case.
The purchase transaction costs that come on top of the purchase price are often underestimated. As a non-binding guide:
- Real estate transfer tax: 3.5 to 6.5 percent of the purchase price, depending on the federal state
- Notary and land registry: often around 1.5 to 2 percent
- Broker's commission: may apply in addition
In total, this often adds up to around 9 to 12 percent of the purchase price. On a purchase price of 300,000 euros, that is roughly 27,000 to 36,000 euros on top of the purchase price. How banks and appraisers assess a property's value is, by the way, a topic in its own right: our guide to property valuation offers an accessible introduction.
Fixed-interest period, unscheduled repayments and more: the key levers
The fixed-interest period determines for how many years your interest rate is locked in. 10 or 15 years are common; 20 years and more are also possible. The decision is a trade-off between security and price:
- Long fixed-interest period: means planning certainty, because the conditions are fixed for many years.
- Shorter fixed-interest period: is usually somewhat cheaper, but carries the interest rate risk. Nobody knows today what the conditions will look like when the follow-up financing is due.
Beyond the fixed-interest period, it is worth looking at a few contract features that make a financing plan more flexible:
- Unscheduled repayment rights: allow extra repayments outside the regular installment. It is often possible to agree 5 percent of the loan amount per year.
- Repayment rate switch: the option to adjust the repayment rate during the term.
- Forward loan: locks in the conditions for your follow-up financing in advance, in exchange for a premium.
- Commitment interest: accrues if the loan is not drawn down for an extended time, for example on a new build. Review this point in the contract deliberately.
Which features suit you depends on your life situation. Have the options explained to you in a conversation with your bank or an independent advisor, and run the numbers on several variants.
And a reassuring thought for anyone hesitant about a long commitment: whatever fixed-interest period you agree, a statutory right of termination applies 10 years after full disbursement. The next section explains what that is all about.
The statutory right to terminate after 10 years
Surprisingly few owners know this rule, even though it is written into law: 10 years after full disbursement, you can terminate your loan in whole or in part with 6 months' notice under Section 489 of the German Civil Code (BGB). This applies regardless of the fixed-interest period you agreed.
In practical terms: even a very long fixed-interest period of 15 or 20 years does not tie you down to the last day. The long period secures your conditions, yet after 10 years the law still holds the door open for you to restructure the financing, in whole or in part.
Good to know
The 10 years are counted from the full disbursement of the loan, not from the day the contract was signed. And partial termination is possible too, for example for part of the outstanding balance.
Planning your follow-up financing early
At the end of the fixed-interest period, the loan is usually not yet fully repaid. For the remaining balance, you need follow-up financing. The most important advice here is simple: take care of it early, often 1 to 3 years before the period ends, and compare the conditions at your leisure.
Two routes are open to you:
- Prolongation: You continue the financing with your current bank on new terms.
- Remortgaging: You move the remaining balance to a different bank.
Whether prolongation or remortgaging is the better choice depends on the conditions the banks offer you at the time of the follow-up financing. So the same principle applies here: compare, calmly and without time pressure. If you want planning certainty early on, you can also look into a forward loan: it fixes the conditions for your follow-up financing in advance, in exchange for a premium.
Tip
Put the end date of your fixed-interest period in your calendar, with a reminder a few years ahead. That leaves enough time to weigh prolongation, remortgaging and possibly a forward loan side by side, without any rush.
Keeping subsidies on your radar
When looking at the overall financing, it always pays to ask about subsidies. There are subsidy programs from KfW, Germany's state development bank, and from the federal states, for example for home ownership and for energy-efficient renovation. The support comes partly as low-interest loans and partly as grants.
We deliberately name no specific programs or conditions here, because both change again and again. So check the current status before arranging your financing, and actively raise the topic in your financing conversation. That way you make sure no suitable subsidy is overlooked. Current programs are also worth a look for projects of a condominium owners' association, such as an energy-efficient renovation of the shared building.
How WEGs finance major works
With condominiums, there is a special feature many buyers only discover after moving in: major works on the common property, such as the roof, the heating system or an energy-efficient renovation, are decided not by the individual owner but by the condominium owners' association (WEG). Accordingly, they are also financed collectively. Three routes are common:
Maintenance reserve
Over the years, the association builds up a joint reserve from which works on the common property are paid. If it is sufficient, this is the simplest route.
Special levy
If the reserve is not enough, the association can adopt a special levy: an additional payment by the owners, fixed by resolution.
Loan taken out by the association
Since the owners' association has legal capacity of its own, it can also take out a loan itself. This requires a resolution, and the owners are liable proportionately.
Which mix makes sense depends on three factors: the level of the reserve, the urgency of the works and what the owners can afford. If the reserve is well funded and the works can be planned ahead, the association often manages without any extra burden. If the works are urgent and the reserve is tight, a special levy or a loan comes into view, and a combination of routes is possible too.
There is also a connection every buyer and owner should know about when financing their own condominium: when lending against a condominium, banks regularly review the association's documents as well, such as minutes of the owners' meetings, annual statements, the monthly service charge (Hausgeld) and the level of the reserve. Orderly documents and professional management make the credit decision easier. You will find deeper background knowledge for condominium owners in our guide Owner essentials.
Good management strengthens financeability
With condominiums, banks look closely at the WEG documents: minutes, annual statements, the monthly service charge (Hausgeld) and the level of the reserve. A professional property management company keeps these documents in order and thereby makes the credit decision easier. Is your association looking for better management? Describe your property in two minutes and receive non-binding quotes from property management companies in your region. 100 percent free of charge for owners.
Frequently asked questions about property financing
How much equity should I plan for?
As a rule of thumb: pay at least the purchase transaction costs from your own funds, and ideally part of the purchase price as well. Figures of 10 to 20 percent are often mentioned. The more equity you contribute, the better the conditions usually are. Financing entirely without equity is possible, but more expensive and riskier.
What transaction costs arise when buying?
On top of the real estate transfer tax of 3.5 to 6.5 percent, depending on the federal state, there are notary and land registry fees of often around 1.5 to 2 percent, plus a broker's commission where applicable. In total, this often adds up to around 9 to 12 percent of the purchase price. These figures are a non-binding guide.
Long or short fixed-interest period: which is better?
There is no one-size-fits-all answer. A long fixed-interest period means planning certainty, while a shorter one is usually somewhat cheaper but carries the interest rate risk at the point of follow-up financing. 10 or 15 years are common, and 20 or more are also possible. The choice depends on your situation and your need for security.
What is a forward loan?
With a forward loan, you lock in the conditions for your follow-up financing in advance, in exchange for a premium. That creates planning certainty if the fixed-interest period of your current loan does not end for a few more years.
Can I terminate my loan after 10 years?
Yes. 10 years after full disbursement, you can terminate the loan in whole or in part with 6 months' notice under Section 489 of the German Civil Code (BGB). This applies regardless of the agreed fixed-interest period.
How does a condominium association finance a major renovation?
Major works on the common property are financed by the association from the maintenance reserve, through a special levy adopted by resolution, or through a loan taken out by the association itself. The loan requires a resolution, and the owners are liable proportionately. Which mix makes sense depends on the reserve, the urgency and what the owners can afford.
Does the bank also review the property management company and the WEG documents?
Yes. When lending against a condominium, banks regularly also review association documents such as meeting minutes, annual statements, the monthly service charge (Hausgeld) and the level of the reserve. Orderly documents and professional management make the credit decision easier.
What subsidies are available?
There are subsidy programs from KfW and the federal states, for example for home ownership and energy-efficient renovation, partly as low-interest loans and partly as grants. Programs and conditions change, so check the current status before arranging your financing.
Related guides
This article provides general editorial orientation (last updated: July 2026) and is not financial, investment or legal advice. Conditions, subsidy programs and the legal framework change over time. For specific decisions, please consult your bank or an independent advisor.