With the current outlook for interest rates and property prices uncertain it’s easy to be confused whether buying property makes sense. Use Hypofriend’s free calculator to understand if buying makes sense for you.
You may be tempted to just use the lender who your real estate agent typically works with, but that doesn't guarantee you'll get the right mortgage for your situation. Going to the bank directly can be a tiring endeavour as well. We strongly recommend to check online to get a first indication and understand what mortgage fits your situation. Instead of endlessly comparing we automatically find the best rate from all lenders.
Mortgages are complex and there is no need to hesitate when reaching out to an expert. A large part of a mortgage expert's job is consulting you on your key decisions to ensure that you have the right mortgage for your situation and matching that with a lender who has a product that fits your criteria.
Only after reviewing your documentation will we be able to give you a complete offer. This avoids the unnecessary back and forth with slow and unresponsive banks. Due to our software and partner integrations we are able to work quickly with lenders whilst continuously tracking the best rates. Get started by finding the right mortgage online.
Can’t find what you’re looking for here? We’ve got more answers on our FAQ page
Every purchase of German property is associated with purchasing fees that must be covered by the buyer. In a nutshell, the total purchasing fees can be as high as 15% of the purchase price in some regions of Germany.
There are three types of purchasing fees that property buyers must pay in Germany:
1. Real estate commission (0–7,14%)
This fee is paid to the real estate agent for supporting the buyer in selling the property. It can range from 0% - 6% of the property price. With the value added tax (VAT) of 19% in Germany, the total commission fee will lie anywhere between 0–7,14%.
You can find quite a few properties where half the maximum fee is charged, i.e. 3,57%, and sometimes 0%, but often the maximum is charged. In Germany, the commission is not uniformly regulated, (it’s agreed between the seller of the property and the broker) but is capped at a maximum of 7,14% of the purchase price. Depending on the region in Germany where the property is purchased, the commission is either fully paid by the buyer, the seller or split between the two parties. For example, in Berlin the buyer pays the full commission while in Munich the fee is split.
The real estate commission for a purchase price of 300,000 € would therefore result in 21,420 €. In some cases, the commission can be avoided by buying directly from the property owner. Another way would be to purchase new build property directly from real estate developers.
2. Property transfer tax (3–6,5%)
The second highest fee associated with is the property transfer tax (Grunderwerbssteuer). The tax amount will vary depending in which region of Germany the property is purchased. As of 2018, the tax ranges from 3-6,5% of the purchase price. For example, in Berlin the property transfer tax is 6% whereas in Munich it is only 3,5%. The property transfer tax is an important factor in transferring the property rights to the new owner. Only after the tax office has confirmed that the property transfer tax has been paid will the buyer be entered as the new property owner in the German land registration (Grundbuch). Buying an apartment for 300,000 € in Berlin will incur a property transfer tax of 18,000 €.
3. Notary & land registry fees (1,5%-2%)
In Germany, purchasing property only becomes legally binding when it is registered by a public notary. The associated notary fee (including the land registry fees) is typically 1,5-2%% of the purchasing price. See the notary fee glossary for details. Among other things, the notary will take care of drafting the purchasing contract, entering the buyer in the land registration and generally taking care of all communication with the German tax office. It is up to the buyer to decide which notary they wish to use.
In Germany, the notary is also the only legal entity that is authorised to register the new property in the German land registration. The land registration is a public account that describes all matters concerning ownership, possession or other rights associated with land ownership.
The buyer must typically cover the total sum of the fees associated with buying property in Germany. In the example of purchasing an apartment for 300,000 € in Berlin, with maximum real estate agent fees, the total fees would amount to 45,000 € (i.e. 15%) that must be paid on top of the original purchase price of 300,000 €.
German lenders nearly universally require buyers to cover these purchasing fees from their own savings. For most potential buyers in Germany this is the limiting factor in how much house they can afford to buy. It is important to bear in mind that banks may make exceptions if buyers have an exceptionally high income, and have good job security.
TIP: buying without a real estate fee can double the effective downpayment you have. For example: if you have savings of 30.000 Euro you can afford a property of 200,000 Euros if the total purchase costs are 15%. If the cost are just 7,5% you can afford a property of 400,000 Euros (7,5%*400,000=30,000). In either case, your income will have to be high enough to support your monthly payments.
The loan amount will depend among on the property price and the amount of equity that the buyer can put down towards the purchase.
For example, a property with a price of 300,000 € may have maximum purchasing fees of 45,000 € (i.e 15% fees). In this case, German lenders will require the buyer to cover the purchasing fees with their own equity, i.e. a minimum of 45,000 €. This means that the buyer may be eligible to borrow up to 100% of the property price. Lenders commonly refer to this as the Loan-to-Value (LTV) ratio – the ratio of the loan value to the collateral value of the property.
In Germany, mortgages with a lower LTV attract lower interest rates. While this may differ between lenders, the interest rates often improve quite a bit (say 0,2-0,4%) when the Loan-to-Value is under 80%, compared to an LTV of 95%. By adding more equity to cover a portion of the property price the LTV decreases and you can improve the mortgage rate.
However, for new home buyers it is often difficult enough to come up with the equity to cover the purchase fees. Instead of putting down more equity it often makes more sense to buy the right size house, so that the homeowner avoids moving early and incurring the high purchasing fees again. To find out what you can afford, try our free affordability calculator.
To see what the right loan amount would be try our mortgage recommendation engine: find the right mortgage
This will depend on a number of individual circumstances, such as job security, future plans, age etc. Unlike other Western countries, it is most common for mortgages in Germany to be fixed. The fixed period refers to the number of years that an interest rate is fixed for in a mortgage. In Germany, the default length for a mortgage is 10 years. This means that the interest rate is locked in for 10 years. During that time the interest rate does not change and the monthly mortgage payments are not subject to change either.
In choosing the optimal period a buyer should always be aware of how much residual mortgage debt will be remain at the end of the fixed period. For example, a loan amount of 250,000 € that is fixed for 10 years will have a residual debt of roughly 196,000 € after 10 years. While this is common for most, buyers need to know that they will need to refinance the residual debt or pay it back completely to the lender.
A commonly made mistake made by many first-time buyers in Germany is to choose a fixed period that is either too short or too long. Buyers are often too fixated on the initial interest rate. For example, a mere 0.1% change in the interest rate on a 250,000 € mortgage will merely result in a difference of 20 € in monthly mortgage payments.
In choosing the right fixed period, the following rules apply for German mortgages:
In addition many people don’t realize that taking out a fixed interest rate for 30 years is often overkill from a financial security perspective. After 20 years the amount left on the mortgage is often small, while your income has increased, and it is quite likely that you have actually moved house.
Given all of the above facts, it is recommended that most people applying for a German mortgage choose a fixed period between 5-20 years. While It is important to choose a fixed period with a low enough interest rate, retaining enough mortgage flexibility and a person’s future plans for the property are equally important factors in deciding on the optimal fixed period.
The ideal repayment rate will depend on several factors, such as the level of your income, and how much of your monthly income you can dedicate to mortgage payments. In Germany, mortgages are primarily annuities, that is you pay a fixed amount yearly over 12 monthly payments. This annual amount stays the same for the duration of the fixed interest period.
Mortgage payments are composed of a monthly interest payment and a repayment component. When closing such a mortgage, the initial repayment rate is annually fixed at a percentage rate. The most common repayment rate ranges from 2–5%. For example. assuming a 2% interest rate and a 3% repayment rate would result in 5% annuity. Using a loan of 250,000 €, this would result in annuity of 12,500 €, or monthly payments of about 1,042 € per month.
The key characteristic of annuity mortgages is that with each passing monthly mortgage payment, the outstanding debt declines. This means that while the monthly payment stays constant the distribution between the interest and the repayment changes. Even though the interest rate remains the same, the interest paid becomes less because of the declining loan balance. As a consequence, the repayment slightly increases every month.
It usually does not make sense to choose a high repayment rate from an interest perspective. Interestingly, in Germany interest rates barely increase if the repayment is reduced. Therefore, if income is the constraining factor in determining how much house the buyer can afford, a lower repayment rate of 1.5–3% or even 1% could make sense. However, when the buyer faces much uncertainty, whether that be early retirement or insecure income or job prospects, then it may make sense to increase the repayment so that the residual loan balance at the end of the fixed period is minimized.
Tip: You can also start with a low repayment and then increase it at a later date. In Germany you typically refinance your mortgage after 10 years. At that time your income is higher and it can make sense to raise your repayment at that time, while keeping it somewhat lower at the time you buy your home. The reason is as follows: With high transaction costs, it makes more sense to buy the right house once, even if it is more expensive, and then make it affordable with a lower repayment, then to move house again in 10 years time. Especially with low interest rates it is affordable to buy a somewhat larger house that you will grow into. Then after 10 years, you can always increase your repayment rate in light of your higher income and the outlook for interest rates etc. at that time.
A final factor to consider is investments or alternatives uses of your income. If you use your income to save and invest in stocks or another house, your return may be higher then if you have a high repayment rate. You can then also sell your stocks or investment property at a later stage if you need to repay your loan.