When you first move to Germany, you will probably want to rent an apartment or house while you establish yourself in your new job, get used to living in a new country, and settle in to your new life. After a while, though, you may fall in love with Germany and decide that you want to stay on permanently. If that happens, you may also wish to purchase a home in Germany. Purchasing a home anywhere is a legal process and requires dealing with a mortgage, and buying a house in Germany is no different.
Mortgages in Germany are set up just like most other developed civilizations. You have to deal with a lender who technically owns your home while you gradually pay off your mortgage plus interest. Once it is paid off, you officially own your home. If you are delinquent with your payments, then you will be penalized and may even lose your home.
The way in which German mortgages differ from those in other countries is the way in which they assess the value of both the property and the buyer. When you speak with your mortgage lender, he or she will dig into your life and your financial situation to better assess how well you will hold up paying off your mortgage and how high your interest rate should be.
Types of Mortgages in Germany:
Fixed Interest Loans
With Fixed Interest Loans you are repaying capital and interest over time. This type of loan, which is the most common in Germany, has you paying in installments that do not change throughout the duration of the loan. As you pay it off, your interest will slowly decrease while your repayment amount will slowly increase, balancing out your total installments so they never change. Typically, you get to choose the percentage amount for your annuity and the length of your loan.
Interest Only Loans
During your fixed term, you only pay interest. With this type of loan, make sure that you have enough money set aside to pay the outstanding loan at the end of the term. The benefit of this type of loan is that often the interest payments are tax deductible.
Building Society Loan
With this type of loan you pay in installments to a Building Society Savings Program, which will then pay off the mortgage at a later date. However, be cautious of this type of loan, as it can come with many additional fees.
Variable Rate Loan
A variable rate is one that fluctuates, and with this type of loan the interest rate tracks the relevant base rate with the Euribor, which is short for Euro Interbank Offered Rate. This type of loan comes with multiple options for you. You will typically pay the Euribor plus an adjustment; however, you can give a full or partial repayment in general every 3 months. The loan can also be turned into a fixed interest and repayment loan if the situation requires it. The key to this type of loan is to pay close attention to the Euribor. If it gets too high, then you will be paying a very high interest rate.
Dealing with mortgages can be confusing and stressful. To make the process of buying a house run smoothly, do the appropriate research ahead of time. Also, focus on the positive; you have a beautiful new home in Germany.
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