Mortgage Glossary

The upfront fee charged when opening a Bausparvertrag, typically 1-1.6% of the Bausparsumme. One-time cost at contract signing.

Depreciation tax deduction for rental property. 2% annual depreciation on the building value (not land) for properties built after 1924, or 2.5% for older buildings.

The initial repayment rate at the start of the loan. As you pay down the balance, the effective repayment rate increases because more of each payment goes to principal.

A fixed-payment mortgage where the monthly payment stays constant, but the proportion of interest vs. principal changes over time. Early payments are mostly interest; later payments are mostly principal repayment.

Follow-up financing needed when your fixed interest period ends. You'll refinance the Restschuld at then-current market rates.

The loan portion of a Bausparvertrag, available after Zuteilung at the guaranteed interest rate locked in when you signed the contract.

The accumulated savings balance in your Bausparvertrag, earning interest (typically 0.1-1%) during the savings phase.

The target contract sum of a Bausparvertrag, split between your savings (40-50%) and the loan portion (50-60%).

A building savings contract combining a savings plan with a guaranteed low-interest loan. You save for 7-10 years, then receive a loan at a fixed rate locked in when you signed.

A processing or origination fee charged by some banks. Must be included in the Effektivzins calculation.

The maximum loan-to-value (LTV) ratio a bank will lend. Typically 60-80% of Beleihungswert, with better rates for lower LTV.

The lending value of a property as assessed by the bank, typically 80-90% of market value. Banks use this conservative estimate to limit their risk.

Standby or commitment interest charged by banks if you don't draw down the loan within a specified period (typically 3-12 months after approval). Usually 0.25% per month.

A guarantee or surety where someone (typically a family member) co-signs to secure your loan if you have insufficient income or collateral.

The total loan amount borrowed from the bank. This is the principal that must be repaid plus interest over the loan term.

The loan interest rate for the Bauspardarlehen, fixed at contract signing. Historical contracts may have very low rates (1-2%).

An upfront discount or fee that reduces the loan amount you receive in exchange for a lower interest rate. Effectively prepaid interest.

The effective annual rate (APR) that includes all fees and compounding, giving you the true cost of the loan. Required by law to be disclosed for comparison shopping.

Your own contribution to receive maximum Riester subsidies, at least 4% of your previous year's gross income minus subsidies.

Your equity or down payment – the cash you bring to the purchase. Minimum 10-20% is typical, plus enough to cover Nebenkosten. More equity = better rates.

German income tax with progressive rates from 14% to 45%. Rental income is added to your other income and taxed at your marginal rate.

Energy renovation of existing buildings – improving insulation, windows, heating systems to reduce energy consumption and qualify for KfW support.

Energy efficiency standards for KfW programs, measured in Effizienzhaus levels (40, 55, 70, etc.). Lower numbers = better efficiency = more subsidies.

A forward loan that locks in today's interest rate for a mortgage starting up to 5 years in the future. Useful when your current fixed period is ending and you want to secure current rates.

Your marginal tax rate – the rate applied to your next euro of income. Important for calculating the actual tax benefit of rental deductions.

Land registry fees for registering the property transfer and mortgage lien (Grundschuld). Usually around 0.5% of purchase price.

Property transfer tax paid to the state when buying real estate. Rates vary by Bundesland from 3.5% (Bavaria, Saxony) to 6.5% (Brandenburg, NRW).

A land charge registered against your property as collateral for the mortgage. Unlike a Hypothek, it's not automatically tied to the loan amount and can be reused for future borrowing.

The basic annual government subsidy for Wohn-Riester, currently €175 per person if you contribute at least 4% of your income.

The savings interest rate earned on your Bausparguthaben during the savings phase. Typically low (0.1-1%) but provides stability.

A mortgage lien directly tied to the loan amount. Less commonly used than Grundschuld because it cannot be reused for additional borrowing.

The purchase price of the property before closing costs. This is the base amount for calculating Nebenkosten and determining your financing need.

Home Ownership Program providing up to €100,000 for purchasing or building owner-occupied residential property, with attractive interest rates.

Bauspar Combination program providing up to €50,000 to complement a Bauspar loan for home ownership.

Climate-Friendly New Construction program offering up to €150,000 in subsidized loans for energy-efficient new buildings meeting QNG certification standards.

Energy-Efficient Renovation program with up to €60,000 per unit for single measures (windows, insulation, heating) that improve energy efficiency.

Government-backed loans from KfW (Kreditanstalt für Wiederaufbau) offering below-market rates and/or repayment grants for energy-efficient construction and renovation.

The child bonus for Wohn-Riester, €300 per child (born after 2008) or €185 per child (born before 2008) per year.

Church tax of 8% (Bavaria, Baden-Württemberg) or 9% (other states) of your income tax, if you're a registered member of a tax-collecting church.

The total duration until the loan is fully repaid. Not to be confused with Zinsbindung (fixed interest period), which is typically shorter.

Life insurance that can be used as collateral for a mortgage or to pay off the loan at maturity (Tilgungsaussetzung model).

Real estate broker commission. Since 2020, sellers must pay at least half of the commission when selling to private buyers. Typically 3-6% total.

Rental income from letting property, subject to income tax after deducting Werbungskosten.

Blended financing combining a regular bank loan with KfW subsidized loans. The weighted average rate (Mischzins) is often significantly below market rates.

The fixed monthly payment you make to the bank, consisting of both interest and principal repayment portions.

Deferred taxation of Wohn-Riester benefits – you save taxes now but pay taxes on the Wohnförderkonto balance in retirement.

Closing costs or ancillary costs when buying property in Germany. Typically 10-15% of purchase price, including transfer tax, notary fees, and broker fees.

Notary fees for handling the property purchase and mortgage registration. Required by law in Germany, typically around 1.5-2% of purchase price.

A benchmark rate used as a reference for variable-rate loans, such as EURIBOR. When the reference rate changes, your loan rate changes accordingly.

The remaining debt at the end of the fixed interest period. This is the amount you'll need to refinance or pay off when your current mortgage term ends.

Interest expense on your rental property mortgage, fully deductible against rental income as Werbungskosten.

A 5.5% surcharge on income tax, largely phased out for most taxpayers since 2021 but still applies to high earners.

The nominal or base interest rate charged by the bank, excluding fees and compounding effects. Always lower than the Effektivzins.

Special or extra repayments beyond your regular monthly payment. Most German mortgages allow 5-10% annual Sondertilgung without prepayment penalties.

The savings phase of a Bausparvertrag where you accumulate your minimum savings amount (typically 40-50% of Bausparsumme) to qualify for the loan.

The repayment or amortization portion of your monthly payment that reduces the principal balance. In German mortgages, you choose an initial repayment rate (typically 2-3%).

A deferred repayment mortgage where you pay interest-only during the loan term, with principal repaid at maturity (often via life insurance or investment).

A loan with constant principal payments and decreasing total payments over time. Unlike Annuitätendarlehen, payments decrease because the interest portion shrinks as the balance reduces.

The amortization schedule showing how each payment is split between interest and principal over the life of the loan.

The repayment rate expressed as a percentage of the original loan amount. Higher rates mean faster payoff but higher monthly payments.

A repayment grant from KfW that reduces your loan balance – essentially free money if you meet the program requirements.

Debt restructuring or refinancing to a different lender, often to get better terms. May incur Vorfälligkeitsentschädigung (prepayment penalty).

Tax loss carry-forward allowing rental losses to offset other income (employment income) in the same or future years.

Renting or letting property to tenants. Rental income (Mieteinnahmen) minus deductible expenses (Werbungskosten) equals taxable rental profit.

Employer capital formation contributions that can be invested in a Bausparvertrag. Up to €40/month with additional government bonus possible.

A full repayment mortgage where the loan is completely paid off within the fixed interest period, leaving zero Restschuld. Requires higher monthly payments but provides certainty.

Prepayment penalty charged if you pay off your mortgage early or refinance before the fixed period ends. Compensates the bank for lost interest.

Deductible expenses that can offset rental income, including mortgage interest, maintenance, insurance, property management, and depreciation (AfA).

A housing subsidy scheme allowing Riester pension savings to be used for home purchase or mortgage repayment, with government bonuses and tax benefits.

A notional account tracking Wohn-Riester usage for deferred taxation. The balance grows 2% annually and is taxed in retirement.

A government housing bonus for Bauspar savers meeting income limits. Up to 10% bonus on savings up to €700/year (single) or €1,400 (married).

The fixed interest period during which your rate is locked. After this period ends, you'll need to refinance at prevailing market rates (Anschlussfinanzierung).

The interest rate charged on your loan, expressed as a percentage per year. Can refer to either Sollzins or Effektivzins depending on context.

A graduated interest rate structure where the rate changes at predetermined intervals. Less common than fixed rates in German mortgages.

The allocation or maturity point when your Bausparvertrag becomes eligible for the loan portion, after meeting minimum savings and waiting period requirements.