KfW loans: How to save money on your German mortgage

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Julia Ptock

Sep 2, 2021
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The Kreditanstalt für Wiederaufbau (KfW) promotes the purchase of residential property with various products. You can save up to tens of thousands of euros when buying real estate. Hypofriend shows you which KfW subsidies are available and which conditions apply.

Table of Contents

  • How does KfW funding work?

  • KfW loans and grants for existing properties and new builds

  • How to apply for KfW loans?

  • Can I cancel a KfW loan?

  • Is unscheduled repayment possible for KfW loans?

  • KfW subsidies: a good option for your German mortgage

How does KfW funding work?

KfW is a state-owned development bank. It supports residents as well as municipal companies and public institutions with a variety of funding programs. 

The KfW subsidies are loans and grants. Homebuilders and buyers can combine their mortgage with a variety of subsidy programs with very favorable interest rates and thus save you several thousand euros. In addition, KfW also offers grants for certain purposes that do not have to be repaid. 

The loans of the KfW subsidy are usually cheaper than a normal mortgage. With the low-interest loans, the German government wants to create incentives for particularly sustainable construction or age-appropriate conversion measures, for example.

Another major advantage is that KfW funding can be combined not only with a normal mortgage. The different subsidy programs can also be combined with each other. This means you can benefit from the low-interest loans several times at once. 

Our financing experts will be happy to explain to you in a personal consultation which programs make sense for you and how, if necessary, several subsidy programs can be combined with each other. 

KfW loans and grants for existing properties and new builds

Below, we show you the most relevant KfW subsidies for existing and new-build properties. We explain the conditions and what is subsidized. 

KfW-Wohneigentumsprogramm (124)

With this loan, the KfW supports you on your way to your home in Germany. The important thing here is that you live in the property yourself and do not rent it out. The main benefit is that banks often improve their conditions if you combine it with this KfW loan. Another advantage is also the low interest rates. Note that you can also combine the 124 program with other KfW loans.

The conditions 

There are two different forms of financing: either an annuity loan or a bullet loan. While in the case of an annuity loan, you pay an equal monthly annuity (i.e. interest and repayment) after the grace period. In the case of a bullet loan, you only pay back the interest during the entire term and the entire loan amount in one sum at the end.

Since the annuity loan is the standard case, here are the conditions in more detail: 

  • Effective annual interest rate: 0.85% to 0.98%. The interest rate depends on how long it is fixed (5 or 10 years). 

  • Loan amount: up to 100,000 euros 

  • Repayment free period: 1 to 3 years

  • Payout: 100%

  • The loan can be drawn down either in one sum or in installments within 12 months of commitment. If required, the commitment period can be extended to up to 36 months, although commitment interest of 0.15% per month will then be charged on the loan amount not yet drawn down.

  • Early repayment of the entire outstanding loan amount is possible - subject to an early repayment penalty. Unscheduled repayments of part of the outstanding loan amount are not possible.

What is being supported? 

In the case of existing properties, the loan can cover the purchase price, costs for repairs, modernization as well as additional purchase costs such as notary and brokerage fees and land transfer tax. 

In the case of a new build, it's the costs for the building plot, the construction such as material and labor costs, costs for the architect, the energy consultant, notary and brokerage fees, and land transfer tax as well as costs for outdoor facilities.

Baukindergeld (424)

The "Baukindergeld" is a grant for the first-time purchase or construction of owner-occupied residential property for families and single parents with children in the form of a grant. 

The requirements for the Baukindergeld are quite strict. According to KfW, families with children and single parents who meet the following requirements are eligible for support:

  • There are children under 18 in your household for whom you or your partner receive child benefits.

  • Your signed notarized purchase agreement or building permit is dated between 01.01.2018 and 31.03.2021.

  • Your new home is your only residential property in Germany.

  • Their household income is a maximum of 90,000 euros per year for one child plus 15,000 euros for each additional child.

  • Your new home or apartment is located in Germany. 

  • Your nationality does not matter.

The amount of the Baukindergeld depends on the number of children and the maximum household income. The following table explains how much the Baukindergeld is.

conditions for baukindergeld, KfW subsidies

Please note: the subsidy is currently expiring. That’s because the purchase contract had to be signed, or the building permit issued by March 31, 2021. The last day families and single parents can apply for Baukindergeld is December 31, 2023.

If you want to learn more about the Baukindergeld, we recommend our more detailed article "Baukindergeld: Extra benefit for new homeowners with kids".

Residential building - credit (261, 262)

Funding is available for the renovation, new construction, or purchase of a new or newly renovated efficiency house and individual energy efficiency measures in existing properties.

The conditions

As with the 124 subsidy program, there are two forms of financing: the annuity loan and the bullet loan. We have already explained the difference between the two types of loans, so let's get straight to the conditions.

  • Effective annual interest rate: 0.57% to 0.76%. The interest rate depends on mortgage duration and the repayment-free period 

  • Repayment free period: 1 to 5 years

  • Fixed interest period: 10 years

Loan amount and repayment subsidy

The loan amount and the repayment subsidy depend on what is to be subsidized. The KfW differentiates between a) the construction and purchase of a new efficiency house, b) the renovation of existing properties into an efficiency house, and c) individual energy efficiency measures for existing properties.  

Let’s have a look at these specials! 

a) construction and purchase of a new efficiency house

The maximum amount you can borrow for an efficiency house depends on how energy-efficient your new building is and how high your subsidizable costs are. If you achieve efficiency house levels 40 or 55, they will support your project with a loan amount of up to 120,000 euros per residential unit.

The maximum loan amount increases to 150,000 euros per residential unit if your property additionally meets the criteria for a renewable energy class or sustainability class or achieves Efficiency House 40 Plus.

With the repayment subsidy, you can save a lot of money because it reduces your loan amount to be repaid and shortens the term. This means you do not have to repay the entire amount. The better the efficiency house level of your new property, the higher the repayment subsidy. The maximum repayment subsidy is 37,500 euros per housing unit.

b) renovation of existing properties into an efficiency house

As in the case above, the loan amount depends on how energy-efficient your modernized property is and how high your eligible costs are. If you achieve an efficiency house level, the KfW will support your project with a loan amount of up to 120,000 euros per residential unit.

The maximum loan amount increases to 150,000 euros per residential unit if your property also meets the criteria for a renewable energy class. And the maximum repayment subsidy is 75,000 euros per housing unit.

c) individual energy efficiency measures for existing properties

As in cases a) and b), the loan amount depends on how high your eligible costs are. You will receive a maximum of 60,000 euros as a loan per residential unit and calendar year for energy-related measures.

The amount of the repayment subsidy is 20 percent and is granted for the following measures:

  • Insulate walls, roof surfaces, basement, and floor ceilings

  • Install or renew windows and exterior doors

  • Install or renew summer thermal insulation

  • Install ventilation systems

  • Install digital systems that optimize energy consumption or make technical equipment smartly controllable

The following rule applies to heating technology measures: the better the measure, the higher the repayment subsidy, which is between 20 and 40 percent. If you replace an oil-fired heating system with a heating system based on renewable energies, you will receive a higher repayment subsidy, which can be up to 50 percent, depending on the new type of heating system.

Residential building - grant (461)

Next to the residential building loan, you can apply for a grant. The big benefit: you don’t have to repay it. 

In general, the same measures are supported with the grant as with the loan (261, 262). You can find out exactly what the requirements and conditions are on the KfW website

How to apply for KfW loans?

The KfW loan is not applied for directly at KfW, but always via a so-called "on-lending bank". Most major German commercial banks that offer mortgages cooperate with KfW. This means that you not only take out the main loan to finance your dream property with the financing bank but also the matching KfW loan. 

The KfW loan is normally secured via the land register, as is the main financing. In this case, however, it is not KfW that is entered as the creditor, but the on-lending bank. This is because it is liable to the KfW for your solvency. The main loan is given first place in the ranking order because it normally has a higher residual debt. The KfW loan is therefore secured on a subordinate basis. In the end, there are 2 loans in the land register:

  • The main loan, usually an annuity loan, creditor: the on-lending bank.

  • The KfW loan, usually also an annuity loan, creditor: also the on-lending bank.

Can I cancel a KfW loan?

You can terminate your KfW loan at any time. However, the cancellation is subject to conditions, depending on how long your KfW loan has been in place. 

  • Your KfW loan has been running for less than 10 years: If the duration of your loan is less than 10 years, KfW charges an early repayment penalty. The amount of the prepayment penalty is determined by the bank, through which you applied for the KfW loan at the time. You then pay the outstanding remaining debt as well as the prepayment penalty to KfW. 

  • Your KfW loan runs for longer than 10 years: You can terminate a KfW loan that runs for longer than 10 years at any time free of charge with 6 months' notice. In this case, the statutory special right of termination under Section 489 of the German Civil Code (BGB) applies. 

In times of low interest rates, it is also worthwhile to opt for a long fixed-interest period for KfW loans to avoid being exposed to the risk of interest rate changes. If contrary to expectations, interest rates fall further during the term of the loan, the special right of termination takes effect after 10 years. In the case of KfW loans that have not been existing for more than 10 years, it is worth checking the costs. If the prepayment penalty is lower than the interest savings of the new loan, it also makes sense to switch interest rates in this case.

Is unscheduled repayment possible for KfW loans?

KfW only offers unscheduled repayments on its KfW loans to a very limited extent, and normally charges an early repayment fee for unscheduled repayments. The exact amount of the early repayment fee will be disclosed to you by the on-lending bank through which you once applied for the KfW loan.

KfW subsidies: a good option for your German mortgage

Knowing and using the KfW subsidies can save you a lot of money. Whether you’re planning a new build or want to buy an existing property, you will pretty sure find a KfW product that supports your project. Especially when it comes to energy efficiency. This does not only do something good for the environment but helps you to reduce your additional costs e.g. for heating.

Our financing experts will be happy to help you find the right KfW subsidy for you. Please contact us for a free consultation!

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Julia Ptock

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