The annuity loan is the classic form of real estate loan.
An annuity loan is a loan with constant repayment installments. In other words, a constant fixed amount is repaid to the lender. This installment is composed of two parts: the interest and the repayment amount. With each installment payment, the remaining debt decreases and thus the interest portion. The repayment portion, on the other hand, increases with each repayment.
The interest rate is agreed for a certain term - usually ten years. After ten years, you have a certain risk of interest rate changes, because it is very likely that the interest rate will have changed after ten years. For example, if you took out your financing with a very low interest rate, you will have to expect a higher interest rate for your follow-up financing.
And what is also important to know: The lower the interest rate, the longer the term of your loan, because you simply pay off less of the residual debt with your monthly instalment.
Not every bank offers the option of extra payments. So check in advance whether this option is available. If so, you can usually repay an additional 5% of the loan amount per year.
You can also find out more about annuity loans in the episode "Alles Annuitätendarlehen oder was?" of our Urbyo podcast "Immobilien einfach machen." Have a listen!
Note: German audio only