Tilgung

What is Tilgung (loan repayment)?

Tilgung (German for loan repayment) is the repayment of the borrowed loan amount. With a German mortgage, borrowers pay a monthly instalment made up of two parts: the interest portion (Zinsanteil), which is the bank's charge for lending the capital, and the repayment portion (Tilgungsanteil), which is the actual paying down of the debt. Only the Tilgungsanteil lowers the remaining balance (Restschuld).

The repayment rate (Tilgungssatz) is fixed at the start as a percentage of the loan amount, which is why it is called the Anfangstilgung (initial repayment). Since the remaining balance falls with every payment, the absolute interest gets a little smaller each month. With an annuity loan (Annuitätendarlehen), the total instalment stays constant, so the freed-up amount automatically flows into higher repayment. In this way, repayment speeds up on its own over time.

How high you set the initial repayment has an enormous effect on the total term and the interest cost. Even one extra percentage point can cut the term by many years and save tens of thousands of euros in interest.

Calculating Tilgung: an example

Assume a loan amount of €300,000, a nominal interest rate (Sollzins) of 3.5% per year, and a fixed-interest period (Zinsbindung) of 15 years.

In this example, the difference between 1% and 3% initial repayment is roughly €144,000 in interest cost and shortens the term by 20 years. The monthly instalment rises by €500 in the process, which has to be budgeted for realistically.

Note: once the fixed-interest period ends, the remaining balance is refinanced. The actual total term and the total interest cost therefore also depend on the later follow-up rate (Anschlusszins).

Good to know

• Minimum 1%, recommendation 2% to 3%: Many German banks require at least 1% initial repayment, but experts advise 2% to 3% to keep the term within a sensible range.
• Repayment and life stage: Younger buyers can often start at 2% and catch up later with Sondertilgungen (extra repayments). Anyone buying shortly before retirement should repay at a higher rate from the start, so the loan is paid off in time.
• Repayment-free start: Some banks offer a repayment-free initial period (tilgungsfreie Anlaufzeit) of up to 12 months. During this time you pay only interest, which lowers the early burden but raises the total cost.
• Sondertilgung as a supplement: Many contracts allow annual extra repayments (Sondertilgungen) of 5% to 10% of the original loan amount. This is a flexible way to pay the loan down faster without permanently carrying a higher instalment.

Legal basis

Loan contracts for property financing in Germany fall under the Bürgerliches Gesetzbuch (BGB, the German Civil Code). § 488 BGB sets out the basic obligations from a loan contract, including the borrower's duty to repay. § 489 BGB grants borrowers a special right of termination after ten years of fixed interest, with six months' notice and no early repayment penalty (Vorfälligkeitsentschädigung). On top of this, the rules of the Wohnimmobilienkreditrichtlinie (EU 2014/17, the Mortgage Credit Directive) apply, which oblige lenders to carry out a thorough creditworthiness check and to disclose costs transparently.