When it comes to real estate financing, most property buyers automatically think of a fixed monthly payment over many years. In fact, there are several forms of credit that differ significantly in terms of repayment, fixed-interest period and flexibility – and depending on your life situation, one may be the smarter choice. We compare the most important types of loans, along with their advantages and disadvantages, and show who each option is suitable for.
What defines a type of loan
Legally, every real estate loan is a loan agreement within the meaning of Section 488 of the German Civil Code (BGB): The bank provides you with an amount of money, on which you pay interest and which you repay. How exactly this takes place determines the type of loan. Three factors are decisive:
- Repayment: Do you repay continuously alongside the interest, not at all, or in full within the term?
- Fixed-interest period: Is the borrowing rate guaranteed for a fixed period or does it adjust to the market?
- Term and remaining debt: Is there a remaining debt at the end that must be refinanced?
The combination of these factors results in the following five types of loans.
The annuity loan: the standard option
The annuity loan is by far the most common form of real estate financing in Germany. Its core feature is the annuity – a monthly payment that remains constant throughout the entire fixed-interest period. This payment consists of an interest component and a repayment component. As the remaining debt decreases with each payment, the ratio shifts: the interest component becomes smaller and the repayment component larger. An initial repayment of two to three percent is customary.
The major advantage is planning certainty. With a ten-year fixed-interest period, you know exactly how high your payment will be for an entire decade. The disadvantage: Once the fixed-interest period expires, a remaining debt usually remains, for which you need follow-up financing at the terms applicable at that time. In 2026, mortgage rates for ten-year fixed-interest periods are around 3.5 to 3.9 percent, depending on creditworthiness and the property.
- Advantage: high planning certainty through a constant payment
- Advantage: flexible design through the repayment rate and additional repayments
- Disadvantage: remaining debt and interest-rate risk after the fixed-interest period
The full-repayment loan: debt-free at the end of the fixed-interest period
With a full-repayment loan, the the entire loan amount repaid within the fixed-interest period. After the final payment date, you are debt-free – no follow-on financing is required, and neither is there any interest-rate risk. The repayment rate is not the focus; rather, it is the point at which you want to be debt-free; the bank calculates the necessary rate from this. Many banks grant borrowers who fully repay within the fixed-interest period a small interest-rate discount because the residual-debt risk is eliminated.
The price is a noticeably higher monthly payment and less leeway: Because repayment is firmly tied to the term, payment adjustments or repayment breaks are hardly possible.
- Advantage: guaranteed to be debt-free, no follow-on financing, often an interest-rate discount
- Disadvantage: high fixed payment, little flexibility
The bullet loan: interest only at first, then everything at once
With a bullet loan (also called a fixed loan), you pay only interest during the term. Repayment takes place at the end in a single sum. This keeps the ongoing burden low, but makes the loan more expensive overall: Since the residual debt never decreases, interest is charged on the full amount over the entire term. Usually, a repayment substitute is saved in parallel – such as a building-savings contract, an investment savings plan or a life insurance policy – from which the loan is repaid at the end.
For owner-occupiers, this form is rarely worthwhile. It is particularly interesting for capital investors because the interest on debt for a rented property can be deducted for tax purposes as income-related expenses and remains permanently high due to the lack of repayment.
- Advantage: low ongoing payment, tax-attractive for landlords
- Disadvantage: highest total interest costs, additional risk associated with the repayment substitute
The variable-rate loan: flexible, but uncertain
A variable-rate loan has no fixed-interest period. The interest rate is linked to a reference interest rate – usually the 3-month Euribor – plus a bank margin of generally 0.8 to 2.0 percentage points, and is usually adjusted every three months. If market interest rates fall, you benefit immediately; if they rise, your payment increases.
The major advantage is flexibility: You can terminate a variable-rate loan at any time with three months’ notice and repay it without an early repayment penalty (§ 489 para. 2 BGB). This makes it a good choice for bridging finance – for example, if you are expecting the proceeds from the sale of another property. AsDue to the interest-rate risk, permanent full financing is suitable only for risk-tolerant buyers.
- Advantage: full flexibility, no early repayment penalty, opportunity if interest rates fall
- Disadvantage: unpredictable interest-rate risk, no planning security
The building society loan: saving and financing in one
A building society savings contract combines two phases. During the savings phase, you usually build up savings over seven to ten years until around 40 to 50 percent of the building society sum has been reached and the contract is ready for allocation. This is followed by the loan phase: You receive the building society loan at an interest rate that was already fixed when the contract was concluded. This very long-term interest-rate security is the real appeal—especially in times of uncertain interest-rate developments.
The downside: The savings balance earns hardly any interest during the savings phase (on average around 0.25 percent), and a contract fee of usually around 1.6 percent of the building society sum is charged upon conclusion. In addition, building society loans are typically limited to 20,000 to 100,000 euros and are rarely sufficient for a complete purchase. However, they are attractive as a component for modernization, refinancing, or a purchase planned for several years from now—especially since you can use government subsidies such as the housing construction premium.
- Advantage: long-term interest-rate security, government subsidies possible
- Disadvantage: low interest on savings, contract fee, uncertain allocation date
Subsidized loans as a supplement
In addition to these classic forms, it is worth looking at subsidized loans with reduced interest rates. The KfW Home Ownership Programme, for example, supports owner-occupied residential property with up to 100,000 euros per project and can be combined with other loans. Following the interest-rate cuts in spring 2026, individual KfW loans are significantly cheaper than the market rate. Such subsidized loans generally do not replace the main financing, but as an additional component they reduce the average interest rate of your financing.
Which type of loan suits whom?
- Security-oriented owner-occupiers: annuity loan with a long fixed-interest period; with a good income, also a fully amortizing loan.
- Buyers who want to be debt-free quickly: fully amortizing loan.
- Investors and landlords: bullet loan with a repayment substitute.
- Short-term bridging: variable-rate loan.
- Long-term planners and modernizers: building society loan, often combined with an annuity loan.
FAQ about the Loan Types
Which type of loan is the most affordable?
This cannot be answered in general terms. Over the entire term, a fully amortizing loan is often the most affordable because of the rapid repayment and interest-rate discount, while the bullet loan incurs the highest interest costs. However, your personal situation and the current terms are always decisive.
Can I combine different types of loans?
Yes, this is even common practice. Many financing arrangements consist of an annuity loan as a foundation, supplemented by a KfW promotional loan and, where applicable, a building savings contract. This allows interest-rate security, subsidies and flexibility to be combined.
What happens after the fixed-interest period ends?
With annuity and bullet loans, a remaining debt usually remains. You arrange follow-up financing for this amount – either with your existing bank (extension) or with another institution (refinancing). Fully amortizing loans have already been repaid in full by this time.
When can I terminate a loan early?
Under Section 489 of the German Civil Code (BGB), you may terminate a loan with a fixed borrowing rate at any time after ten years from full disbursement, subject to a notice period of six months and without an early repayment penalty. If you repay earlier, the bank may demand an early repayment penalty; for consumer loans, this is limited to 1 percent (or 0.5 percent if the remaining term is less than one year) of the amount repaid (Section 502 of the German Civil Code (BGB)). Variable-rate loans can in any case be terminated at any time with three months' notice.
Which type of loan is suitable for investors?
For rented properties, a bullet loan is often attractive because the consistently high interest on the debt can be claimed as tax-deductible expenses. You should consult a tax adviser to determine whether this pays off in your individual case.
Conclusion: The right type of loan depends on your objective
There is no single best type of loan – there is only the right one for your situation. Those seeking security are well advised to choose an annuity or fully amortizing loan. Investors often benefit from a bullet loan, flexible buyers from a variable interest rate, and long-term planners from a building savings contract. In practice, combining several components often produces the best result. Compare the Consider offers carefully and take the fixed-interest period, repayment and funding opportunities into account together when making your decision.