Mortgages for buying German Property

Get your tailor-made offer for a German real estate mortgage from our highly experienced mortgage broking team

Like most countries in the world Germany also has its own, special mortgage system with unique features. Most mortgages for expats – no matter whether they are registered as being resident in Germany already or not – are based on the annuity system.

Annuity stands for constant monthly or quarterly repayment installments, which consist of interest and principal (or capital) borrowed. By paying back the principal from the beginning, the borrower reduces their remaining mortgage with each installment. So with each subsequent installment a little bit less interest has to be paid. The saved interest is used for increasing the amount of principal repaid with each installment, which keeps the overall installment total unchanged. This approach results in an ever-increasing reduction of the mortgage balance owed over the months and years.

In principal the repayment installments remain constant for the whole period the borrower has fixed their interest rate for (most borrowers go for 10 years, but other periods are also common). Once the period of the fixed interest rate has expired you can repay all or part of the remaining mortgage penalty-free. You can only repay the mortgage early if you sell the property or upon goodwill of the lender.

Nobody can know at present whether there will be a penalty at that point and if so how much it will be. Usually the lender takes the interest portion of each remaining mortgage installment and compares it with the interest they would get for the same amount on an alternative investment in the capital market for the same individual duration of each payment. If the return of the alternative investment is higher the lender stops as there is no reduction on their return.

If it is lower they take the difference between the originally agreed installment and the alternative investment return. The result of each is then discounted by the remaining duration and each individual interest rate. Possible options for extra, penalty-free redemptions are considered as if the borrower would have made use of all of them in the future – this reduces a possible penalty tremendously. A very small administration fee might be added no matter whether there is a penalty or not.

This is just an example how sophisticated German mortgages can become. There are of course some more aspects to be considered. Berlin Finance (BF) will help you to get the mortgage most appropriate for you and your personal circumstances. Using Berlin Finance is absolutely risk-free for you, as we do not charge fees for our services at any stage.

One of our features which clients like most is our free after-sales service. We do not just say “Thank you and Goodbye” once a borrower has signed a mortgage contract. We also assist borrowers when the mortgage has to be drawn down and even thereafter – for example to get annual statements. You can also count on us for accompanying services like the opening of a German bank account.

We are ready to support you – now you just need to tell us how we can help.

FAQ’s

Yes, but each lender has its own criteria regarding which properties and borrowers they accept. Sometimes a certain combination of property and buyer might not work, for example if a company under Australian law wants to get a mortgage for a commercial unit located in a rural area.

Some lenders have loan-to-value (LTV) limits or limits on the total amount they would lend, while others do not; just tell us as much about your requirements as you can and we will tell you if it makes sense to apply for a mortgage.

Most of the mortgages are so called annuity mortgages. You have fixed repayment installments over an agreed period of time consisting of an ever decreasing interest portion and an ever-increasing principal (or capital) portion. Very important: In Germany the tenure of a mortgage can be the same as or longer than the duration of the period you fix interest rates for. Once the period of fixed interest rates expires you can either fully or partly repay the residual; stay with the lender and arrange for an extension at the then prevailing interest rate; or switch over to a new lender and do the same.

At the moment we get mortgage totals of some € 30-40 million per annum approved for our clients. We do not count the number of contracts, but the estimated figure would be some 250 per year. We have still capacity to expand, but we are also focused on upholding the quality of our work rather than the quantity.

We will always do our best for you, but we are of course also only humans. If a mishap occurs, you can be sure that we provide our utmost to get it sorted out as soon as humanly possible!

This depends on several criteria, i.e.: how quickly the most appropriate lender for you can be found; how quickly the complete set documents required by this lender can be submitted; sometimes how quickly a German bank account can be opened for you if you do not have one, and; last but not least the time of the year (for example, summer vacation or year-end are periods where processes usually become slower). Once the lender has received the complete application set it can be a matter of just very few working days, but it can also take some 3-5 weeks or even more if it is a sophisticated or complex application.

These are usually:
1. We (you and us) get to know each other
2. You tell us what you want and what is important to you and provide us with some first details of the investment you want to get a mortgage for.
3. We check what lenders might be appropriate (LTV., interest rate, tenure, requirements).
4. You choose the lender you think is most appropriate.
5. You get a list of still required documents/details from us.
6. We launch the actual application and keep you updated.
7. You get the mortgage documents for signing and whatever goes with it (instruction copies, translations of some pieces etc.)

Once the period of fixed interest rates has expired you can always repay the complete mortgage balance or part of it penalty-free. You can only repay earlier in case you sell the property or upon goodwill of the lender. Nobody can know at present whether there will be a penalty and if so how much it will be, but most often it would be the difference between what the lender would have earned from the interest on your loan compared with what the same amount would have earned them on the capital markets. If you want to go deeper into it, you might google translate this link: https://de.wikipedia.org/wiki/Vorfälligkeitsentschädigung

If you consider your loan from the lender’s perspective it is like an investment into a bond and the lender has the right to get the full yield originally agreed on, either by a repayment with interest rates over the years or by a compensation if there is no such repayment.

With all your professional experience, what do you consider most important for an investor or a borrower from abroad?

Definitely to pick the right local partners! For the majority of overseas investors Germany is more or less is kind of a black box. You therefore need partners who do not promise you the sky and take advantage of your lack of knowledge about how things work in Germany, but are realistic, have a good track record and are reliably there for you as long as you need them.

Definitely to pick the right local partners! For the majority of investors Germany more or less is kind of a black box. You therefore need partners who do not promise you the sky and take advantage of your lack of knowledge about things work in Germany, but are reliably there for you as long as you need them.

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