Most property buyers in Germany take out a mortgage to reduce the amount of capital they need upfront. Mortgage lending in Germany works differently in several ways from mortgage lending in Hong Kong, and includes loan types that do not exist there. Here is how German mortgages work, and the five loan types you are most likely to come across.
How Mortgages Work in Germany
German mortgage lenders will, in theory, lend up to 100% of a property’s value (excluding the other costs of buying). In practice, financing of around 80% is more common, even though some German banks are willing to finance the full amount. Non-German citizens are seen by banks as a higher-risk borrower, so if you are not a German resident or employed in Germany, you will usually need to put down a larger deposit upfront.
Mortgages typically run for 25 to 30 years, with the interest rate fixed for the first years. Borrowers can also choose a higher overall rate in exchange for a fixed rate locked in for 10, 20 or even 30 years. Compared with many other countries, German mortgage rates are relatively low. As of March 2026, Bundesbank data puts the effective rate on new German residential mortgages at roughly 3.72%-3.74%, not the 1-2% quoted from the 2021/2022 source. Check the current month’s figure before you commit. To stop anyone taking on a mortgage they cannot afford, lenders make sure a borrower’s monthly mortgage payment does not exceed 35–40% of their salary — which in turn means lenders expect a comparatively high salary from the applicant.
The Five Common Types
| Type | German name | How it works |
|---|---|---|
| Annuity loan | Annuitätendarlehen | The most common form. A fixed-rate loan for a 5–30 year term. Your monthly payment stays the same for the whole term: at first mostly interest, with a small part repaying the loan; as the loan is paid down, the interest share falls and the repayment share rises. Borrowers can usually set their own repayment rate (2–10% of the original loan a year, called “Tilgung”) and may be allowed a one-off extra payment (“Sondertilgung”) to pay off the loan faster. |
| Full-repayment loan | Volltilgerdarlehen | Very similar to the annuity loan: a fixed combined interest-and-repayment amount is paid each month. The difference is that interest and principal are each apportioned to the fixed term you choose upfront, and the monthly payment is calculated from that chosen term. |
| Interest-only loan | Endfälliges Darlehen | Uncommon among ordinary applicants; used almost exclusively for buy-to-let. The owner pays only interest each month, with no repayment of principal; the full outstanding loan is due when the term ends. Foreign buyers usually need a large deposit to qualify. Equivalent to an interest-only loan in the UK, and suited to buy-to-let investors. |
| Bausparen (building savings loan) | Bausparen | Based on a mutual-help model: a group of savers pay into a shared fund each month, and members can borrow from the fund once it is their turn to build or renovate. Bausparen contracts are only offered through a dedicated credit institution, Bausparkasse Schwäbisch Hall (schwaebisch-hall.de). Savers commit to saving roughly 0.3–0.7% of the eventual loan amount every month; once savings reach 40–50% of that amount, the saver becomes entitled to the Bauspar loan. This suits buyers with more capital to set aside upfront. |
| Variable-rate loan | Variables Darlehen | The opposite of the fixed-rate types above: interest is pegged to the Euro interbank rate and adjusts every three months. Borrowers can usually repay part or all of the loan every three months without penalty, similar in operation to a floating-rate loan in Hong Kong. This flexibility lets borrowers take advantage of rate movements and repay faster, and is often combined with a fixed-rate loan. |
Which One Fits Your Plans?
Each of these five loan types suits a different purpose. A buyer planning a major renovation might use a Bausparen loan; an investor buying to let is more likely to choose an interest-only loan. Work out your purpose before applying, and get advice from a professional.
Have a question about this guide? Leave a comment below, or ask Zagdim directly.
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