German mortgages explained

In the legal sense, a mortgage is the right with which a bank or building society secures a mortgage loan. The mortgage secures a plot of land with or without buildings. It is one of the liens on real property and is regulated in the German Civil Code (Section 1113 BGB).

If the builder fails to meet his obligations under the loan agreement, the bank can apply for foreclosure. It can use the proceeds from this to repay the construction loan. Usually, you can only cover a part of the purchase price of your desired property with your own funds. The greater part is financed by a mortgage. This means a loan from a bank, which is secured by the property. How to get a mortgage in Germany

Let your customer advisor advise you on all aspects of real estate purchase. There are various contact points in Germany for this purpose. Depending on your life situation, it is appropriate to first contact the house bank. Various financing proposals are measured by how good the customer’s liquidity is.

After the financing proposal has been drawn up, the loan agreement is signed. The chances of getting a mortgage increase due to positive liquidity, a clean credit bureau, and sufficient evidence of the security of the repayment from the banks.

This is followed by the signing of the purchase contract and you are the owner of your dream property. The property serves as security for the bank. The bank pays out the mortgage amount according to the purchase contract within a few days. From now on, according to the contract, you pay the mortgage interest to the bank and repay your mortgage through amortization.

It applies that you must finance at least 20% of the property value set by the bank with your own funds. It is therefore possible to cover up to 80% of the real estate value with a mortgage. If there is good liquidity, a smaller portion of the payment is also possible.

You can finance up to 67% of the property value as a 1st mortgage. They do not have to amortize this, i.e. do not have to pay it back. You can finance another 13% of the property value as a second mortgage. You have to amortize the second mortgage within 15 years or by the time you reach retirement age – whichever comes first.

The right combination of short-term and long-term mortgages is crucial so that you can enjoy your own home without any worries in the long term. With a fixed-rate mortgage, the interest rate remains the same over the entire term. This gives you planning security and protects you against rising interest rates.

However, they do not benefit from any interest rate cuts. With the SARON mortgage, you have to reckon with interest rate fluctuations and benefits when interest rates are low or falling. Compared to a fixed-rate mortgage, the interest rate for a SARON mortgage is usually lower.


This article was written by Stephanie Fries who was a German apprentice interning at Irish Mortgage Brokers in April 2022

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