Types of rates in real estate loan

Show notes

Your monthly quota consists of two rates:

1. The first one is the interest ˈɪn-trest rate (known in German as Zinssatz),

2. the second one is the amortization rate (known as Tilgungssatz).

The interest interest rate tells you how much the bank is charging you to lend you money, and it can go up or down depending on the key interest ɪn-trest rates of the European Central Bank.

The amortization rate, on the other hand, refers to the rate at which you pay off the principal loan amount. In other words, it determines how quickly you’ll pay the bank back.

Apart from that, Germany also has a legal regulation called the “Price Indication Ordinance” which requires financial institutions to disclose the effective interest ɪn-trest rate (this is known in German as Effektiv-zinssatz).

The calculation of this rate considers all loan-related costs, such as the interest interest rate, loan period, repayment rate, timing of payments, as well as broker commissions, and any other collateral fees.

Unfortunately, every bank has a different way of calculating the effective interest ɪn-trest rate, which makes it less transparent than it should be. It can also be quite difficult to compare offers taking just the effective rate into consideration.

That’s why comparing the interest interest rate and the repayment rate is a more reliable approach when analyzing two or more offers.

And of course, you should also take other hard facts such as the loan amount, lock-in period, and special repayments also play a role in the decision.into account when deciding.

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