**The so-called annuity loan is a loan with fixed interest rates. You pay the bank a consistent monthly installment within the fixed interest period agreed in advance. This is what you need to know.**

The annuity loan is a popular form of real estate financing. This is a loan with a fixed interest rate of between five and 30 years. Especially in this time of rising inflation, interest rates fluctuate enormously, mainly upwards. At the same time, however, you do not benefit from falling interest rates during the fixed interest rate period. The fixed interest rate allows you to have a predictable rate because the interest rate for your loan is fixed by the bank directly when you take out the loan. This makes building financing very easy to plan. However, choosing the right interest rate lock-in period and repayment rate is crucial in order to minimize costs.

The annuity loan is particularly interesting for owner-occupiers. If you plan to live in your property yourself in the future and permanently, then this form of loan offers you the best planning thanks to the constant monthly payments, similar to rent payments. However, builders who want to rent out the property later should consider financing with a bullet loan instead. Because if you don’t use your living space yourself, you can claim the loan interest in your tax return.

Interest and repayment together form the annuity. These two components are calculated based on the loan amount. To calculate interest and repayment, take your loan amount times the interest rate in decimal notation. So, for example, 250,000 x 0.03 (interest rate of 3 percent). This results in the sum of the annuity. You then calculate the calculated annuity minus the interest. Here you get the pure repayment.

It’s easier with the building financing calculator from our partner Baufi24, which you can use online free of charge.

Repaying a loan consists of two parts.

With the repayment you regulate the loan. You can also influence the term of the loan through the amount of the repayment rate.

The higher the loan amount you pay off each month, the faster you will have repaid the building loan. Accordingly, if the repayment rate is low, you will initially pay primarily interest payments. This is quite common at the start of the loan. However, the principal debt decreases much more slowly and the term of the loan extends. The advantage here is the lower monthly rate.

Borrowers often decide to increase the repayment rate during the repayment process.

The fixed interest rate, in particular the amount of the fixed interest rate, influences the actual repayment of the loan. The higher the interest you pay on the loan, the faster the monthly repayment will increase. Because if the interest is paid off quickly, the interest portion of the remaining debt decreases quickly and the pure repayment portion can increase.

The term of a loan initially depends on the amount. What is also crucial is the nominal interest rate, i.e. the borrowing rate that you pay as the price for the money you borrow. Based on an interest rate of 3.5 percent of the total loan, the loan runs for around 18 years with four percent repayment. However, the usual entry into a building loan is usually calculated with two percent repayment, which results in a loan term of 30 years. Loan holders often increase the repayment from two percent to four percent over time.

If you do the math the other way around and, for example, want to have a fixed term of just ten years, you would have to aim for a repayment of seven percent. The amount of repayment also depends on the age when you take out the loan. The closer you are to retirement age, the faster the loan should be paid off in full and the repayment rate should be accordingly higher.

The private loan generally runs until all outstanding dues on the loan, including interest, have been paid. Before entering into the loan, the term is contractually agreed. A term of 20 to 30 years is considered normal and usual.

The change in repayment rate must be agreed in the loan agreement. The majority of banks allow customers to change the repayment two to three times. A one-off change to the repayment over the course of the first few years is possible with almost all lenders.

The optimal repayment rate for your building loan depends on your disposable monthly income. So look at how much money you have available each month. As a rule of thumb, the monthly repayment to the bank should not be more than 40 percent of your net income. Furthermore, the lower the interest rate, the higher the repayment should be. Because with higher repayments, the term of your loan is reduced and the overall interest burden decreases. With the help of our building interest repayment calculator, you can easily determine the ideal repayment rate for you.

With a higher repayment you shorten your loan term more significantly than with a special repayment. This of course depends on the amount of the special repayment. However, since you generally cannot pay off more than 10 percent of the total loan amount through a special repayment, increasing the monthly repayment rate is more worthwhile. Because here you continuously pay a high repayment portion and the term of the loan also shortens continuously.

In principle, banks are not obliged to agree to early termination. There must be a legitimate interest on your part and at least six months must have passed since the start of the loan. However, in the case of annuity loans with a fixed-interest period, banks must agree to early repayment of the remaining debt without early repayment penalty after a ten-year period, i.e. after the end of the fixed-interest period.

The Federal Court of Justice ruled that you also have the right to terminate the loan if you sell the property. In this case, however, the bank can demand an early repayment penalty.

Another option for early termination arises if the property needs to be mortgaged, for example to take out another loan. The early repayment penalty is also due here.

The prepayment penalty is the fee that is due in the event of unscheduled termination and repayment of the loan before the end of the loan term.

The early repayment penalty consists of processing fees, the interest loss that the bank incurs due to the early termination of the loan agreement, and administration fees.

Depending on the amount of the loan, this compensation can amount to tens of thousands of euros. If the loan agreement is terminated if it has not been running for at least ten years, the early repayment penalty is almost always due.

After a period of at least ten years, the compensation you have to pay to the bank no longer applies. According to the law, you can get out of the loan without paying compensation after a ten-year interest rate fixation.

However, the notice period must be taken into account. This is usually six months. During this time, the monthly payments to the bank must continue to be made regularly before you can fully pay off the remaining debt on the loan at the end of these six months.

The repayment subsidy is part of every loan agreement. It is paid out by KfW. The prerequisite for the payment is the so-called “confirmation after execution”. In this, the borrower, the lending bank and the property developer confirm that the purpose of the funding and the minimum technical requirements have been met.