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What to consider regarding the prolongation of a mortgage in Germany

In Germany, you typically get a mortgage for 5, 10 or 15 up to 30 years fixed interest rate.
We call this “Annuitaetendarlehn”.
The longer the rate is fixed the higher the interest will be.
This is due to the unforecastable and therefore uncalculatable spread between market interest and the fixed interest in the future.

On top the higher the loan in proportion to the value of the property (LTV) will be, the higher the interest rate will be.
Is the loan 60% of the property value, the interest rate will be lower than if the loan is 80% LTV.
Obviously, the risk for the bank is higher the higher their portion of the loan.
In other words, the more equity the lender injects the less risk the bank has to cover.

Typically after the end of the fixed rate, the bank will offer you a prolongation of the loan with new rates according to the market price at this point.

You can accept this offer or you could try to get another bank to get another mortgage with better rates.

But here are the pitfalls to consider.
Typically the old lender does neither check the borrower nor the property again when he offers a prolongation to the borrower,
while any new lender will perform a complete new check of the borrower and the property, as it would be brand new loan with all the required paperwork.

This could be good or bad and depends on how your personal situation, the property market, and your property changed.

We typically consult our clients not to necessarily go with the bank with the best offer, because the new players on the market offer highly competitive rates to penetrate the market, but might not be around in a couple of years, or change their business model when you need the prolongation. Better stick with the big players and swallow a slightly higher intrest rate.

The most important tip on bank financing and mortgages:
Never, never walk alone into a bank, always work with a loan agent.
German: “Finanzierungsmakler bzw. Immobiliendarlehensvermittler” according to § 34i GewO

Here are some more info in a video shot a couple of days ago on our rooftop in Berlin-Mitte: