German Mortgage Glossary

Repayment rate

(Tilgung)

The repayment rate or tilgung is the annual percentage of the mortgage that is being repaid. So if the tilgung is 1%, and the mortgage balance is 100,000 Euro, the repayment is 1,000 Euro per year or about 84 Euros per month. In practice the tilgung refers to the initial repayment rate.

In other countries the repayment convention is very different. In other countries the convention is to choose an end year for the mortgage (usually 30 years, but sometimes other periods are used). The bank then automatically picks a "tilgung" that ensures full repayment at the end of the period. 

In Germany you can choose a tilgung from as low as 1% to as high as 6% or even higher, and often at increments of 0,5%.

 In Germany you therefore have more choice, but it is important to understand this choice. 

TIP: As a rule of thumb a 3% tilgung repays your mortqage in about 30 years. A 2% tilgung repays the mortgage in about 40-45 years. 

The precise speed of repaying your mortgage in full depends on how high the interest rate is. This is a little complex. The reason is that with a higher interest rate, a reduction in the balance saves you more money, and hence, given a fixed monthly payment, allows you to repay quicker.

TIP: Our advice is to focus on the remaining loan balance as a simple way to understand the speed of repayment.  

Finally, keep in mind that only a few banks offer a very low tilgung. A tilgung of 1 or 1%  may come with a higher interest rate, and not all people qualify for such a low tilgung.