Getting a mortgage in Germany

Are you looking to buy a property in Germany? Or are you just curious about how mortgages in Germany work? Hypofriend is a licensed mortgage broker who can help you navigate the complex German mortgage process and advise you on important mortgage decisions. Our advisory is 100% free for you.

Here is everything you need to know about getting
 a mortgage in Germany.

Buying a property in Germany remains a great opportunity, but as a first-time buyer, you may face a number of unknowns. The process can be nerve-wracking. To make the buying experience a bit easier, we will show you how it works and includes tips to help guide you through the process and prepare you for the purchase of your first home in Germany.

Is now a good time to buy property in Germany?

As your very first step, you will want to consider whether it makes sense to buy or whether it is better to just rent. With interest rates at near historic lows, owning a home is relatively cheap. Still, you want to check the numbers. For example: transaction costs are very high in Germany, so you will want to check how long it takes before you make up these costs. Hypofriend has a simple to use tool that calculates how long you need to own the property for it to break even for you. The tool shows you how your financial wealth and cash flow (ie what you keep in your pocket vs spend on rent or mortgage) evolves over time, depending on whether you own a home or not.

Here's how your mortgage is calculated:

Before you then start your property search, you want to understand how much you can afford: ie will the banks indeed provide you with a mortgage for that dream home or that pathway to financial wealth. Here too Hypofriend can help you with a simple tool that does the numbers for you. In Germany, as else where, the two key factors for affordability are your disposable income and your savings:

  1. Your disposable income is calculated by taking your monthly net income and deducting all recurring fixed costs, like insurance, rent etc. For average incomes, a general rule of thumb is that your mortgage monthly payments cannot exceed 40% of your net income. For higher incomes the ratio maybe somewhat higher, for lower incomes somewhat smaller. For self-employed it will be lower as many banks tend to assume high insurance costs, and hence banks often require a minimum net monthly income of about 2,000 Euros.
  2. Your total savings are relevant because this is what you will use as a down payment towards your mortgage. You must ensure that you at least cover all purchase fees (real estate commission + property tax + notary fees). This can be as little as 5% and high as 15% depending on where you buy the property and who you buy it from. Often times, newly built projects are bought directly from the project developer, hence saving you up to 7,14% in real estate commission. Therefore if you do not have much savings compared to your income you will want to consider purchasing a new home or another one with low or zero real estate commissions.

Hypofriend was founded by expats to help
other expats get the right mortgage.

Read our story

Find the right mortgage

After finding a home, finding the right mortgage product is surely the most difficult. Fortunately, Hypofriend can help you here too with concrete advice. We are proud to say that we have the best engine to advise you on the right mortgage. Or rather the only engine in the world that we are aware off. Our proprietary optimal mortgage tool has been designed based on some of the most advanced advisory in debt to provide you with concrete answers.

There are three key questions that you need to decide on:

  • For how long should I fix the interest rate?
  • How quickly should I pay off my mortgage?
  • How much should I initially pay down?

There are several factors that play a key role in determining what is the right product for you, including:

  1. Likely departure

    Your expected stay plays a critical role in determining the length of your fixed interest period. Lock in too short and you may face a high loan balance with rising interest rates. Leave earlier than expected and you may have to pay the bank the lost interest payments back.
  2. Income and income growth

    Understanding your income and how much your income might grow is key to understanding your repayment capacity
  3. Age

    Your age and especially your retirement age are relevant, as this will have an impact on your disposable income in the future
  4. Willingness to rent

    If you are willing to rent your property if leave unexpectedly early, there is a higher security for you to take on more risk
  5. Investment alternatives

    If your alternative investments yield a high return for you, there is no point in repaying your mortgage quickly.

Getting the mortgage decision wrong can be very costly — it can easily cost you a quarter of your home over a 30 year period. For example, paying off too quickly in a low interest rate environment, or too slowly when your income growth is modest and you cannot afford the risk of an interest jump when you refinance. These are complex problems, that require advanced calculations and interest prediction models to guide you.

To find an indication of the right mortgage for your situation use the link below, it will take you through a funnel with a set of basic questions and at the end, you get the core advice and can sign up to get a report.

Finding the right mortgage lender

After you have found the right mortgage product — we will help you find the mortgage lender that offers this product at the lowest price. Hypofriend is integrated with every major mortgage lender which includes all major banks as well as smaller, regional Sparkassen, which amounts to over 400 partner banks in total.

There are a number of different features that we track in order to finetune your search and match you with the best lender:

  1. Regional pricing discounts

    Some lenders will offer regional discounts of 20 basis points, as a German mortgage broker we are notified and can match you to the right lender.
  2. Property valuation

    Some lenders may offer a higher property valuation. A higher property value will imply a more favourable Loan-To-Value (LTV) and in turn a better interest rate.
  3. Commitment fee free period

    Commitment fee free periods are important for buyers who are looking to buy new properties, some lenders offer this feature at more favourable terms.
  4. Fixed interest period

    Not all lenders are competitive across all products, so it makes sense to find the lender who is most competitive for your given fixed interest period .
  5. Flexibility of repayment

    If repayment flexibility is something you want to build into your mortgage, some lenders offer this at more favourable terms while others may charge you excessively.
  6. Prepayment penalties

    Cancelling or selling your property before your mortgage contract ends will result in prepayment penalties , if this is a possible outcome, we will match you with a lender with more favourable terms.
  7. Modernisation costs

    If you want to add the modernisation costs into the mortgage, it makes sense to find the lender that regards this as an investment into the property, as this will improve the LTV and in turn will give you a favorable rate.
  8. Speed and/or specific lending criteria

    The complexity of the process and the vast amount of individual requirements per bank, make it essential that we pair you with the lender that is quick when their is pressure from the seller and time is of importance

Ready to get started?

Get free, professional & independent advice online.

All sponsors