When you want to buy a home in Germany, you’ll almost certainly need to take out a mortgage. Thankfully for new arrivals to the country, German banks and other lenders offer a range of mortgages, including fixed-term and variable-rate deals.
What’s more, internationals can take out a mortgage with no restrictions. However, the amount you can borrow and your deposit depends on your residency status and financial circumstances.
To learn how you can secure a mortgage, read on to learn about the following topics:
- Mortgages in Germany
- Should you buy property in Germany?
- Who can get a German mortgage?
- Types of German mortgages
- Green mortgages in Germany
- German buy-to-let mortgages
- Mortgage rates in Germany
- How much can you borrow for a German mortgage?
- How do you apply for a mortgage in Germany?
- Taxes and tax relief on mortgages in Germany
- German property insurance
- How can you refinance a mortgage in Germany?
- Useful resources
Buying a home in Germany? The certified German mortgage broker Hypofriend can help. They combine advanced algorithms to tailor the right mortgage product to your personal circumstances. Unlike most comparison websites, they do not solely focus on the cheapest product, but on the product that is right for you, ensuring long-term financial security.
Mortgages in Germany
Mortgages are readily available for internationals as long as you can meet criteria on earnings and have a sufficient down payment. Data from Statista shows that Germany was one of only three European countries to have more than a trillion euros of outstanding mortgage balances in 2022.
Despite these figures, many homeowners in Germany don’t have a mortgage at all. So much so, only 27.4% possessed one as of 2021. This is perhaps due to Germany’s culture of residents purchasing properties for the long term rather than progressing up the property ladder.
About 50% of residents in Germany own their own home, the second lowest figure in the OECD. A report from the General Federal Bank (Bundesbank) in 2020 attributed Germany’s low homeownership rate to high real estate purchase costs, the inability to deduct mortgage interest payments when filing your taxes, and the country’s successful social housing sector.
Should you buy property in Germany?
As mentioned above, Germany has a low homeownership rate, with many residents choosing to rent instead of buying a home. This means it might be a good idea to consider renting when first moving to Germany, giving you time to decide whether to buy a property and where to choose.
House prices in Germany vary significantly from area to area, and some locations have reported massive price growth in the last decade. The additional costs of buying a home in Germany can also add up. Property transfer tax (Grunderwerbsteuer) is between 3.5–6.5% (PDF) of the value of the property. You’ll also need to factor estate agent and notary fees into your calculations.
If you choose to rent, your options will depend on the where you live. Germany’s rental market can be very competitive, especially in major cities where most people are tenants. Initial tenancy periods in Germany can be as long as two years. Some tenancies are indefinite, meaning they’ll run until the landlord or tenant serves notice to break the agreement.
Who can get a German mortgage?
There are no restrictions on internationals getting a mortgage in Germany. If you’re an EU citizen, you should be able to borrow on the same basis as German nationals, as long as you’re living and working in Germany. Self-employed workers may find that lenders require greater evidence of consistent income before approving a mortgage.
If you’re a non-EU citizen or have a temporary residence permit, you’ll need the following to get a mortgage in Germany:
- A job in Germany for at least three months
- To be out of your probation period
- A minimum income (this varies between mortgage lenders)
Non-EU citizens may find it more difficult to get approved without a big deposit unless they have a permanent residence permit.
Types of German mortgages
The most common mortgage in Germany is an annuity-fixed rate mortgage (Annuitätendarlehen). With this scheme, you will decide how much you want to pay off each year as a percentage of the overall loan (for example, 5% each year), and your mortgage rate will be based on this.
You will also choose how many years to fix your rate (anything from one year to the entire mortgage term). It is common to fix it for 10 years, as after this time, you are allowed to refinance your mortgage with no additional fees.
If you move houses during your fixed term, you will almost always need to pay a fee to the bank. This can be very expensive, so much so that some homeowners choose to rent their property out to avoid paying this fee.
Other types of German mortgages
Of course, an annuity-fixed mortgage isn’t the only scheme available. You can also apply for the following:
- Repayment mortgage (Volltilgerdarlehen): This type of mortgage involves you specifying a period after which you will have repaid the mortgage (e.g., 20 years) and your monthly repayment is set based on this target
- Variable rate mortgage (variables Darlehen): Your mortgage rate will change every three months depending on the European Central Bank rate. Variable rate deals allow you to make larger payments or switch without penalties but lack the stability of fixed-rate mortgages.
- Interest–only mortgage (endfälliges Darlehen): These mortgages mean paying only the interest each month and paying back the capital amount in one go at the end of the term. These deals require big deposits and are usually only available on buy-to-let properties.
Mortgages in Germany are generally available with terms of up to 25 or 30 years. Many borrowers can also make overpayments of up to 5% each year (Sondertilgung) if they wish to pay off their loan sooner.
Green mortgages in Germany
If your house contributes towards a sustainable lifestyle, you may be lucky enough to get a German green mortgage. This is a subsidized loan to help you improve your home’s energy efficiency.
To be eligible, you must:
- Purchase a home that is energy level A or B
- Renovate your home to improve its energy efficiency
- Construct a home that is energy level A or B
If you fit the bill, you could benefit from lower interest rates (this differs between banks) and significant savings on your utility bills. For more information, check with your bank to see what green mortgages schemes are on offer for your circumstances.
German buy-to-let mortgages
Germany’s property system encourages investment in the rented sector, with favorable tax incentives available for residents who purchase buy-to-let properties.
Investors who live and pay tax in Germany can benefit from mortgage rates and repayment terms similar to those available for owner occupiers – a system at odds with some other European countries, where rates on buy-to-let mortgages are significantly higher. Investors can also deduct their mortgage interest payments from their rental income when filing their tax bills.
Mortgage rates in Germany
Like most places in Europe, German mortgage rates have been very low for much of the last decade. However, European Central Bank has steadily increased their interest rates in 2022 and 2023 – make sure to check their website for current rates.
For more up-to-date mortgage rates for each region of Germany, check out the daily tables provided by Hypofriend.
Rates are influenced by a range of factors. In addition to the wider economic situation and your financial circumstances, rates will vary depending on how long they are fixed.
Mortgage lenders in Germany will usually charge a fee for processing your application. In many cases, this will be built into the rate you pay, rather than an up-front lump sum.
How much can you borrow for a German mortgage?
The amount you can borrow when taking out a mortgage will depend on several factors. First of all, your residency:
- Full residents can theoretically get a mortgage with no down payment. This means the mortgage will cover the full cost of the property. A second loan is available to cover the closing costs of buying the property (such as property transfer tax and notary fees).
- If you live and work in Germany but aren’t a full resident, you can theoretically borrow up to 100% of the property’s value, but to get a good rate you’ll usually need a deposit. You will also need enough money to cover the closing costs yourself.
- If you live and work outside of Germany, you’ll usually only be able to borrow around 60% of the property’s value, meaning you’ll need a deposit of at least 40%
German mortgage lenders will only allow your repayments to be a maximum of 35% of your monthly income. So if you earn €3,000 per month, your repayments will be capped at €1,050 per month.
While it can be possible to get a loan without a down payment (as explained above), you’ll need to carefully analyze what rate you’ll be eligible for. Mortgage lenders base their rates on risk – primarily the risk that you’ll default on your repayments. Taking this into account, a mortgage with a smaller down payment (or no down payment at all) may come with a much higher rate.
Online mortgage calculator
Curious how much your mortgage will amount to for your circumstances? Check the below mortgages calculators to find out:
How do you apply for a mortgage in Germany?
Find out how much you can borrow and take advice
First, use a mortgage calculator (see above) to get an idea of how much you might be able to borrow when taking out a home loan. Once you’ve got this indication, you may want to take advice from an independent mortgage adviser. This is especially useful if you’re new to the German mortgage system, are self-employed, or do not have permanent residency.
Get an agreement in principle
Before starting your search for a property, it can be worth getting an informal agreement in principle from a lender. This is also known as being pre-approved. It involves a lender scoring your application and checking your credit report.
The bank will then provide a certificate outlining how much you can borrow, subject to passing more in-depth checks during a formal application. The informal search (Konditionenanfrage) on your credit report won’t affect your score or be visible to other lenders. Your exact mortgage will only be confirmed once you have submitted a formal application.
Formally apply for your mortgage
Once you’ve made an offer on a property, you should check with your mortgage broker or lender and get the home valued. This will confirm that the price you’re planning to pay is reasonable.
After this, you will need to work out which type of mortgage you need and share your documents. The documents you’ll be asked to provide are:
- A copy of your passport
- Proof of residence
- Proof of funds for your down payment
- Salary slips confirming your income
Once you have paid a reservation fee for the property, you’ll have time to formally apply for your mortgage. After you’ve sent in your application, it will take up to 10 days for the bank to process it. This will include fully querying your SCHUFA score (Kreditanfrage) to assess the level of risk involved in your application and providing your final mortgage offer.
Sign your mortgage contract
Once your mortgage is approved, you’ll have around two weeks to sign your contract. After this, you can progress with the other formalities of buying the property (such as signing the purchase contract). After you’ve exchanged contracts and your notary has set a date to finalize the purchase, you’ll pay your down payment. The mortgage lender will then transfer the remaining money directly to the seller.
Once your mortgage has commenced, you’ll usually make your repayments on the same day each month. As mentioned earlier, your lender may allow you to make higher payments to reduce your balance more quickly.
Taxes and tax relief on mortgages in Germany
Interest on German mortgages for owner-occupied properties is not tax-deductible. However, if you rent out a property in Germany, expenses for generating rental income can be offset on your tax bill.
These include mortgage interest, maintenance, repairs, and home improvements that cost less than 15% of your property’s value. Major home improvements are subject to different taxes.
German property insurance
When buying a house in Germany, you’ll usually need building insurance (Gebäudeversicherung). This provides cover if your property is damaged (for example, if there is a fire or flood).
People buying apartments don’t usually need buildings insurance as this should be included in the block’s insurance policy. You’ll pay your share of this via your service charge. Contents insurance (Hausratversicherung) isn’t required by law, but you may wish to take out a policy to protect your belongings.
Banks may require you to take out protection insurance (Risikolebensversicherung) when you apply for a mortgage. This is likely to be the case if you’re borrowing at a high loan-to-value ratio or are the sole earner in your family. This insurance covers your mortgage repayments in the event of serious illness or death.
How can you refinance a mortgage in Germany?
When you come to the end of your fixed term, you will need to refinance your mortgage (Umschuldung). This involves switching to a new mortgage with your current bank or a different provider.
Homeowners in Germany can refinance after 10 years without facing any penalties. If you wish to change before then, you’ll need to pay early repayment charges (Vorfaelligkeit-sentschaedigung). This is charged as a percentage of the loan. These charges can be very high, so it’s better to wait until the end of your term to switch deals.
Germany has a unique type of remortgage product called a forward mortgage. This allows you to arrange a new deal up to five-and-a-half years before the end of your current one and means you can lock in a rate immediately but start paying it several years down the line. Forward mortgages allow you to get ahead of possible interest rate rises, but if rates drop, you’ll be tied into the deal for a long time.