What does a home loan include

Choosing the right home loan: How to find a cheap home loan

What is a home loan?

A building loan is a construction financing that starts with a loan amount of € 50,000. In contrast to an installment loan, building loans are intended solely for the realization of a building project or the purchase of a property. The terms of construction loans range from 5 to 35 years.

Due to the economic situation, mortgage lending is currently particularly worthwhile, because building interest rates are lower than they have been in years. When choosing the construction loan, however, you should not act rashly. Calculate your home loan carefully in advance. If you are wondering how much home loan you can even afford, we recommend our budget calculator. Once you have defined your financial framework, it is a matter of finding a low-interest home loan that is tailored to your individual life situation.

What is the current interest rate for home loans?

You can currently get building loans with interest rates that are cheaper than ever before - even negative building interest rates cannot be ruled out. That is why so many are now choosing to build or buy real estate. If you want to benefit from the low interest rates, however, keep in mind that good mortgage lending means more than the lowest interest rates. In order to calculate and compare building loans, repayment, fixed interest rates and equity also play an important role.

Use our non-binding home loan calculator

Compare the current interest rates from many home loan providers free of charge and without obligation. All you need to do is enter the value of your dream property, the loan amount you need to buy, the fixed interest rate and the repayment rate of the repayment.

Which home loan providers are there?

In our home loan comparison we show you offers from different providers that differ not only in their interest rates. Some partners can respond better to your wishes and ideas than others. For example, think about the questions of how quickly you need a commitment, whether you would like to have a personal contact person and how long you would like to fix the interest rate. We generally recommend that you obtain three to four offers from different providers and specifically renegotiate them - just as you would with a tradesman. You can find detailed information on the best way to finance your home in our article "Financing your home".

Home loan from a bank

The classic provider of home loans is the branch bank. Above all, she scores with her advisory service - your personal contact person usually remains with you for the entire financing. Direct banks, on the other hand, do not maintain an expensive branch network and can therefore often offer very good conditions. If you enjoy doing a lot of things yourself, you are in good hands here.

Home loan through an intermediary

Research has shown that an agent's offer is often cheaper than the same offer from a bank. The reason for this is that the commission does not have to be paid by you as a customer, but is already included in the effective annual interest rate.

The banks in turn save a lot of costs (room rental, time for (unsuccessful) consultations, salaries for employees) through the work of the intermediaries and therefore offer the intermediaries good conditions. The brokers have their own costs, but they calculate much more tightly than the banks and can pass the savings on to their customers in this way.

Home loan from an insurer

Insurance companies also offer mortgage lending. Companies use this opportunity to invest their customers' money. In some cases, insurers offer fixed interest rates of up to 40 years and long fixed interest rates are often comparatively cheap here.

However, insurers also expect a high level of security from their customers and often require an equity ratio of at least 20%.

Home loan from a building society

Planning security plays a major role at building societies. Here you can combine a pre-financing and a building society loan with each other and secure the low interest rates for up to 30 years without paying an interest surcharge. However, there are always acquisition fees for building society products.

The different types of home loan

In most cases, mortgage lending is an annuity loan in which the loan is repaid in constant installments while the borrowing rate is fixed. They are made up of an interest and a repayment component. Another classic type of financing is the variable building loan, in which there is no fixed interest rate and the interest rate is adjusted to the current market rate every 3 months. You benefit from great flexibility, as variable loans can be terminated at short notice at any time. If you want to secure the currently favorable interest rate for follow-up financing, a forward loan is an option.

The following special forms can also be of interest:

Bauspar contract: The building loan from the building society

Anyone who concludes a home loan and savings contract agrees with the contractual partner on a home loan and savings sum, which the home saver then saves at a fixed percentage. If the contract sum is used after the minimum savings period has expired for the purchase of residential property or for renovation work on a property, the building society saver can apply for a building society loan from his bank after his building society contract has been allocated. Its amount results from the difference between the home loan and savings amount and the savings benefit.

Per: The interest on the home loan and savings contract is fixed for the entire term of the contract. The home loan and savings contract is therefore a safe form of investment that is independent of interest rate fluctuations on the capital market. Depending on the tariff and the current capital market situation, you have the option of taking out a low-interest building loan with your building society after the allocation. Depending on your income, you can also benefit from government subsidies such as housing construction bonuses or employee savings allowances during the term.

Cons: When concluding a home loan and savings contract, many building societies charge high processing and account management fees. For building society savers who do not benefit from government subsidies and allowances, the loan quickly becomes less attractive. With building society savings, the monthly repayment rate is quite high, so the burden is higher than with other types of loan. Another disadvantage of building society savings: You are only entitled to your building society loan when your building society contract is ready for allocation. Building societies, however, are prohibited from providing information about the exact time of the allocation.

Family mortgage: real estate finance for families

The so-called family mortgage is aimed at families with children under the age of 18 in the household. Depending on the number of children, the bank grants an interest discount of 0.25% for the first 5 years. A loan amount of a maximum of € 75,000 is funded per child. As with the annuity loan, borrowers can secure the low interest rate for a period of between 5 to 30 years. In addition, the family mortgage can be used to build or buy a property as well as to reschedule.

Per: As a borrower, you benefit from a particularly low interest rate. The advantage: Due to the low interest rates of the loan, the repayment portion rises faster than with comparable building loans. This significantly reduces the remaining debt at the end of the fixed interest period. Furthermore, in addition to changing the repayment rate during the fixed interest rate, a family mortgage offers an annual special repayment right of 10%.

Cons: A disadvantage of the family mortgage is that the loan amount is limited to € 75,000 per child. If the financing exceeds the maximum subsidized amount, the difference must be borne by a normal interest-bearing annuity loan.

With which fixed interest rate and repayment should I calculate my home loan?

The amount of fixed interest and repayment is always a matter of weighing up. As a rule, banks require a repayment of at least 2% of the loan amount per year. Given the high real estate prices that are currently being charged in many places, with such a low repayment you will pay off accordingly for a long time. Here is an example. We assume a property that costs € 400,000. You bring € 100,000 equity with you and opt for a fixed interest rate of 10 years. You choose your repayment installment with 2%. This results in the following key data:

Calculation example for a repayment of 2%
Loan amount300.000 €
Effective interest rate p.a. 0,59 %
Interest costs after 10 years15.910,31 €
Monthly Rate647,50 €
Remaining debt after 10 years238.210,31 €
Total runtime 43 years and 10 months
Number of installments526
total cost40.529,24 €

With this constellation, you pay an attractive monthly installment of just under € 650, but you need a total of 43 years and 10 months to pay off the loan.

If you double the repayment installment, the financing example looks completely different:

Calculation example for a repayment of 4%
Loan amount300.000 €
Effective interest rate p.a. 0,49 %
Interest costs after 10 years17.737,17 €
Monthly Rate1.122,50 €
Remaining debt after 10 years177.037,17 €
Total runtime 23 years and 8 months
Number of installments284
total cost17.732,50 €

In this example, your monthly charge of just under € 1,125 is significantly higher than in the example above. In return, you are able to pay off your home loan within a reasonable period of time. The higher repayment also reduces the debit interest and the interest costs overall, which saves you almost € 4,175 during the fixed interest period.

In addition to the amount of the repayment, the fixed interest rate, i.e. the term of your home loan, also has a major influence on the interest rate and your monthly charge, as the following example shows. Again, let's assume a loan amount of € 300,000 and 4% repayment:

Interest rates for fixed interest rates of different lengths
 5 years fixed interest rate 10 years fixed interest rate15 years fixed interest rate 20 years of fixed interest rates
effective interest rate0,37 %0,63 %0,70 % 1,01 %

The example clearly shows: the longer the fixed interest rate, the higher the interest rate. At the same time, a long fixed interest rate also offers you security and predictability.

When calculating your individual building loan, it is therefore important to weigh the two: The repayment should be as high as possible, but not so high that you no longer have a financial buffer. And the term of the home loan should offer you planning security. If you need follow-up financing for the remaining debt at the end of the fixed interest period, any increased interest rates should not cause you any problems.

Tip: When setting the monthly repayment installment for your building loan, do not calculate at the limit of your possibilities, but plan in any case a financial buffer for emergencies. A high repayment rate ensures quick debt relief, but not every household can afford this high monthly burden.

Building loans in comparison: what influences the terms?

Although the market interest rates are at a historically low level and the current interest rates for home loans are cheaper than ever, not every borrower gets the same good conditions. Your individual interest rate, with which you finance your apartment or house, ultimately always depends on your personal situation. The following aspects affect the interest rates on your loan:

Amount of equity

As a rule of thumb, the more equity you bring in, the lower the interest rate the bank will offer you. The interest rates are highest for mortgage lending without equity capital. In addition, if you exceed certain thresholds, the interest on your home loan will decrease. Many banks have these thresholds included

  • 20% equity
  • 40% equity
  • 60% equity

In other words, the more money you want to borrow from the bank, the more interest you will have to pay.

Length of the fixed interest rate

The term of your home loan also affects how expensive your loan is. At the moment, loans with short terms of 10 years are usually particularly cheap. This is due to the low interest rates. In the event that interest rates rise again, the banks want to get rid of these cheap loans as quickly as possible.

If you are a skilled craftsman yourself and can lay the tiles or do the wallpapering yourself, the bank may include this work as equity. It's always worth asking.

Repayment amount

The higher the rate at which you pay off your home loan each month, the lower the interest rate on your home loan will usually be. But be careful not to calculate the rate at your financial limit. You should have a buffer for unforeseen expenses each month.

Special repayments

Many banks now offer a special repayment option of around 5% of the building loan amount per year. If you also want to keep a higher option for special repayment of your home loan open, you usually pay an interest surcharge.

Self-employed and retirees often pay a risk premium when taking out a loan. With the self-employed, the bank always fears a loan default due to their fluctuating income. Pensioners are considered a risk group due to their age.

How Much Equity Should I Expect for a Home Loan?

If you use the property yourself, there is now so-called 110% financing. This means that you finance both the property and all ancillary purchase costs such as real estate transfer tax or notary fees via a building loan. This is only possible with a particularly good credit rating and an employment that the bank classifies as very safe. If you are self-employed, are still in your probationary period, are retired or earn little money, you usually do not get this kind of financing.

However, 110% financing is also particularly expensive and the banks can pay for the full financing with an interest surcharge.

There used to be no such financing and the rule was: builders should bring at least 20% equity with them. In times of sometimes astronomical real estate prices, this is becoming increasingly difficult for many builders and 100% or even 110% financing is becoming more and more common.

Reduce the loan amount with KfW loans

One way of reducing your loan amount is to combine the building loan with a KfW loan. The Kreditinstitut für Wiederaufbau (KfW) supports property owners with low-interest KfW loans for building projects. On request, your financing bank will provide you with information about funding opportunities from the KfW Bank.

Home loan faq

  • Can I cancel a home loan?

    Yes, you can terminate your home loan under certain circumstances, namely if your financing has been running for at least 10 years. Then you have a special right of termination in accordance with Section 489, Paragraph 1, No. 1 of the German Civil Code. In this case, the notice period is 6 months. In the event of a special termination, the bank may not charge any early repayment penalties. This means that you can withdraw from the contract at no additional cost.

    Important: You have to cancel at the right time. The start of the 10-year period is not the date on which you signed the loan agreement with the bank, but the date on which the home loan was paid out in full to the seller. The bank confirmed this appointment to you in writing at the time. If you cannot find a confirmation in your documents, check with the bank.

    If the loan agreement has been changed in the meantime, the 10-year period runs from this change date.

  • Can I redeem a building loan early?

    If you cannot make use of the special right of termination and still want to redeem your home loan early, banks demand a so-called prepayment penalty. This is a kind of fine that you pay to the bank. In the case of mortgage lending, this payment can - depending on the loan amount - amount to several thousand euros.

    How the banks calculate this payment is often not transparent and you should always have it checked by a specialist who has experience in banking and capital markets law.

  • Can I reschedule a home loan?

    If the fixed interest rate on your home loan ends or if you make use of the special right of termination, you can reschedule your loan. At the moment, you usually get significantly lower interest rates in this way and you save many thousands of euros.

    Many builders fear the expense of rescheduling, especially if this is done at a new bank and they have to submit documents again like when applying for a loan for the first time. However, many documents are still available from the initial application for the loan or only need to be updated.

  • Can I withdraw a home loan?

    As a private person, you can revoke your home loan within 14 days without giving a reason. Beyond this point in time, you can only revoke your building loan if the cancellation policy in your loan agreement is incorrect or if the bank fails to instruct you about your right of revocation.

    Reasons for incorrect cancellation policy can be, for example:

    • no indication of the legal consequences of a revocation
    • incorrect or incomplete information (e.g. on the type of loan or the term of the contract)
    • wrong or ambiguous cancellation policy by the bank employee
    • no information on termination options

In order to achieve a good relationship between the term of the home loan and the costs, you can split your loan into two to three modules with different terms. It can make sense to borrow part of the sum with a short term at low interest costs, while another part entails higher costs, but also a longer term and better predictability.