Bank mortgages in Germany to finance real estate investments

Which types of bank mortgages are available in Germany for property financing? What do I need to provide as a foreigner to qualify for a bank mortgage in Germany? What should I consider before deciding for a bank mortgage? How can I increase my chances with a German bank?

There are several bank mortgage options to finance a real estate purchase in Germany for non residents. The specific options and terms will depend on your situation (resident vs. non-resident, creditworthiness, etc.). Here's a breakdown of the most common financing methods:

Mortgages (Hypothek):

• Annuity Loan (Annuitätenkredit): This is the most popular option, offering a fixed interest rate and repayment amount over a set term (usually 5-30 years). You pay a portion of principal and interest with each installment. This type of loan offers the most amount of predictability.

• Variable Loan: This is an option you would rather choose when assuming interest rates will decrease in the short-term future. The interest rate with this type of loan is not fixed whereas you can benefit from interest decreasements over time but also carrying the risk that interest rates could go up.

• Endowment Mortgage (Tilgungsträgerdarlehen): Here, you invest a monthly amount into a life insurance policy alongside your mortgage payments. The life insurance matures at the end of the mortgage term, potentially helping pay off the remaining balance.

Funding Sources:

• German Banks: They offer various mortgage products, but eligibility requirements, especially for foreigners, can be stricter. Building a relationship with a German bank beforehand can be helpful.

• Building Societies (Bausparkassen): These institutions specialize in homeownership financing and might offer competitive rates, but often require membership and specific savings plans.

• Private Lenders: This option comes with higher interest rates and stricter requirements but can be an alternative if traditional banks reject your application.

Other Financing Options:

• Cash Purchase: If you have the funds to buy outright, you avoid debt and interest payments. However, this reduces your liquidity in other investments.

• KfW Loans: The state-owned development bank, KfW, offers subsidized loans for energy-efficient properties or for specific purposes like renovations. Explore their programs to see if you qualify.

Important factors to consider when choosing financing:

• Interest Rate: Fixed vs. variable rates, and the overall interest rate offered, significantly impact your monthly payments and total loan cost.

• Loan-to-Value Ratio (LTV): The percentage of the property value the bank finances. Higher LTVs often require private mortgage insurance (PMI) and might be harder to obtain as a foreigner.

• Repayment Term: The loan term affects your monthly payments. Longer terms mean lower monthly payments but also more total interest paid.

• Early Repayment Penalties: Some mortgages penalize early repayment of the loan, so factor this in if you plan to sell before the term ends.

Here are some additional tips:

• Shop around: Compare rates and terms offered by different banks, building societies, and brokers to find the best deal.

• Negotiate: Interest rates and terms are often negotiable, so don't hesitate to negotiate for a better offer.

• Seek professional advice: Consult with a financial advisor specializing in mortgages to assess your situation and recommend suitable financing options.

• Consider a Local Partner: Partnering with a German resident or company familiar with the real estate market can be beneficial, especially during negotiations. Potentially you can also benefit from a local partners positive track record from previous financing.

If you're a non-resident foreigner who is only English speaking RG Immo Consult can advise you on several different financing options and help you to compare interest rates all over the best financing banks of Germany. Even as a first-time buyer you can qualify for a german property financing.

Remember, careful planning and thorough research are crucial when financing a real estate purchase in Germany. Contact our team today to improve your chances for getting a bank finance in Germany.