What is a mortgage actually?

In Germany, just like in most places around the world, a mortgage is a loan that has a property as collateral. Because of the value of the collateral, the conditions for a mortgage are much better then for other loans. In other words, because the bank can sell your house in case you default, they feel far more "safe" extending you a loan, and therefore will grant you better conditions.

The terms and conditions of the mortgage are spelled out in the loan contract: These are the key conditions:

  • the interest rate (the amount the lender charges you for the loan);

  • the fixed interest period (the length of time you interest rate is fixed for);

  • the repayment rate (the amount you pay back annually) and repayment schedule.

In Germany, as elsewhere, almost all mortgages are annuity mortgages. This means that your annual (and monthly payment) are constant. It is only constant for the period you fix the interest rate for, usually 5, 10, 15, 20 or 30 years.

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