What is the difference between "Laufzeit" and "Zinsbindung"?

Show notes

In Germany, "Laufzeit" refers to the loan term or duration, representing the period from the loan initiation to complete repayment. This is a standard concept found in many countries. The confusion often arises with the term "Zins-bindung," which translates to fixed interest rate. Unlike some countries where interest rates can vary during the loan term, in Germany, "Zins-bindung" means your interest rate remains fixed for a specified period—usually 10, 15, or 20 years.

** 📱 Register here to start investing in real estate 📱 ** For example, if you agree to a 15-year "Zins-bindung" for an annuity loan but still have an outstanding debt at the end of this period, you might need a new loan. In the follow-up financing, if you opt for a 10-year "Zins-bindung" to pay off the remaining loan amount, your total "Laufzeit" would be 25 years. So, "Zins-bindung" dictates the period of a fixed interest rate, while "Laufzeit" is the overall timeline for debt repayment.

Importantly, German consumers have the right to terminate and renegotiate a loan contract after 10 years, regardless of the agreed-upon "Zins-bindung" duration. If, for instance, market interest rates significantly drop below your agreed-upon rate after 9 years, you can terminate the contract with a 6-month notice period and secure a new agreement. This flexibility allows borrowers to adapt to changing market conditions during the loan term.