Annuity loan Germany: how an Annuitätendarlehen actually works

Almost every residential mortgage in Germany is structured as an Annuitätendarlehen, an annuity loan. If you've been quoted a mortgage here, you've been quoted this loan type by default, whether or not the bank used the term. Understanding how the fixed monthly payment splits between interest and principal, and how that split changes over the life of the loan, makes every other financing decision, your initial repayment rate, your fixed-rate period, whether to overpay, easier to reason about.

The core idea: one fixed payment, two shifting parts

An annuity loan charges you a single fixed monthly payment, the Rate, for as long as your interest rate stays fixed. That payment never changes during your Zinsbindung, but what it's made of does. Each payment is split into Zinsanteil (the interest portion) and Tilgungsanteil (the principal repayment portion). Early on, most of your payment is interest, since you owe interest on the full outstanding balance. As the balance shrinks, the interest portion shrinks with it, and the principal portion grows, even though the total payment stays exactly the same.

This is different from a loan where you repay a fixed amount of principal each month with interest added on top, that structure exists in Germany too (a Tilgungsdarlehen) but is rare for residential mortgages, since it front-loads your total monthly cost.

Sollzins and Tilgung: the two numbers that set your payment

Your monthly rate is set by two figures agreed at signing: the Sollzins, your fixed nominal interest rate, and the initial Tilgungssatz, the repayment rate you choose, commonly between 1% and 3% of the loan amount per year at current rate levels. Add them together and divide by twelve, and you have your starting monthly payment. A €300,000 loan at a 3.5% Sollzins with 2% initial Tilgung, for example, carries a fixed monthly payment of roughly €1,375.

The Tilgungssatz is the one variable in this equation you control directly. A higher initial Tilgung means a higher monthly payment now, but a shorter payoff and substantially less interest paid over the loan's life, since you're carrying a smaller balance sooner. A lower Tilgung eases the monthly burden but stretches the loan out considerably.

How the split shifts over time

Using that same example, a €300,000 loan at 3.5% Sollzins with 2% initial Tilgung and no extra repayments, here's how the balance and the interest-versus-principal split move over the loan's life:

At this rate and Tilgung, the loan pays off in full after roughly 29 years, with total interest over the life of the loan of around €178,000, more than half the original amount borrowed. Note that the interest and principal portions cross over gradually rather than at any single dramatic point, by year 10 you're already paying more principal than interest each year, even though the loan still has nearly two decades left to run.

Choosing your initial Tilgung rate

There's no universally correct starting Tilgung, it's a trade-off between monthly affordability and total cost. Banks in Germany generally want to see the loan realistically paid off well before retirement age, which shapes what Tilgung they'll accept given your age and the loan term. Many advisers suggest starting as high as your budget comfortably allows, since a higher Tilgung compounds in your favour for the entire remaining term, not just the current Zinsbindung. If your budget is tight now but you expect it to loosen, for example once a partner returns to full-time work, increasing your Tilgung later via your bank's step-up option or through extra repayments can partly substitute for starting higher.

What happens when your fixed period ends

Your Sollzins is only fixed for your chosen Zinsbindung, typically 10, 15, or 20 years, not for the full amortization period shown above. Whatever balance remains, the Restschuld, when that period ends needs Anschlussfinanzierung, follow-up financing, either a Prolongation with your existing bank or a Umschuldung, refinancing with a new one, at whatever rate the market offers then. Our guide to choosing a fixed-rate period covers how to weigh a longer fix against a shorter one, and what your options are as that end date approaches.

Other loan structures you might encounter

The annuity loan dominates the market, but you may come across a few variants. A Volltilgerdarlehen is an annuity loan structured so the Tilgung is set precisely to reach zero balance exactly when the Zinsbindung ends, useful if you want full certainty with no Anschlussfinanzierung at all. An endfälliges Darlehen defers all principal repayment to the end of the term, common mainly in specific investment or Bausparvertrag-linked structures rather than standard owner-occupier financing. And many buyers combine a bank annuity loan with a subsidised KfW loan as a second tranche, which runs its own separate terms alongside the main loan.

Bringing your own money into the equation

Since your monthly payment is fixed regardless of how the split moves, one of the most direct ways to shorten the loan and cut total interest is paying down extra principal when your contract allows it. Our guide to mortgage overpayments in Germany walks through how much most contracts permit penalty-free and what it actually saves. For the fuller picture of financing as an international buyer, see our guide to mortgages in Germany for expats.

As of September 2026. The example figures use a 3.5% Sollzins and 2% initial Tilgung for illustration; your actual rate and repayment structure depend on your lender, deposit, and financial profile. Confirm exact figures with your bank or broker before signing.