Sollzinsbindung: How Long Should You Fix Your German Mortgage?

Note: This content is specific to the German banking system. When you take out a mortgage (Baufinanzierung) in Germany, you don't typically get a "30-year fixed rate" like in the US. Instead, you choose a Sollzinsbindung (Fixed Interest Period) of 5, 10, 15, 20, or even 30 years. During this period, your rate is guaranteed. But the loan usually isn't fully paid off by the end.

The Risk: Anschlussfinanzierung (Follow-up Financing)

Let's say you choose a 10-year fixation.

Years 1-10: You pay a nice low rate (e.g., 3.5%).

Year 11: The fixed period ends. You still owe money (Restschuld*). You must refinance this remaining debt at whatever the market interest rate is in 2035.

Danger: If rates jump to 6% or 7% in 2035, your monthly payment could skyrocket.

To illustrate this risk, consider an example: - You borrow €200,000 at 3.5% for 10 years. - After 10 years, you still owe €140,000. - If the interest rate in 2035 is 6%, your monthly payment will increase significantly.

Strategy: Short vs Long

10 Years (The Standard)

Pros: Lower interest rate offered today.

Cons: Higher risk of rate hikes in the medium term.

Best for: People who plan to sell the house or pay off the debt quickly.

For instance, if you expect to move to a new house in 5-7 years, a 10-year fixation might be a good choice. However, if you plan to stay in the house for a longer period, you should consider the potential risks of refinancing.

15 or 20 Years (Safety First)

Pros: You lock in today's rate for a generation. By Year 20, the remaining debt will be so small that a rate hike won't hurt you.

Cons: Banks charge a "premium" (0.3% - 0.5%) for longer fixation.

To mitigate this premium, you can try to negotiate with your bank or explore other loan options. Additionally, you can consider the following benefits of longer fixation periods: - Reduced risk of refinancing at a higher interest rate - Predictable monthly payments for a longer period - Potential for lower overall interest payments if rates rise in the future

The Secret Weapon: § 489 BGB

German law gives borrowers a massive advantage. Section 489 of the Civil Code states that any borrower can cancel a fixed-rate loan after 10 years with a 6-month notice period, penalty-free. This means if you sign a 20-year fixed rate:

If rates rise, you keep your cheap rate for 20 years.

If rates fall after 11 years, you can cancel and switch to a cheaper loan for free.

Verdict: In a volatile market, fixing for 15+ years is often the smartest move because you have a free "exit option" after Year 10.

Some key takeaways to consider:

A longer fixation period can provide more security and predictability in your mortgage payments

The ability to cancel a fixed-rate loan after 10 years can be a valuable option if interest rates fall

It's essential to weigh the pros and cons of different fixation periods and consider your individual financial situation and goals

👉 [Calculate your Remaining Debt after 10 years](/en/tilgungsrechner)

Making an Informed Decision

To make the most informed decision about your Sollzinsbindung, consider the following factors:

Your current financial situation and goals

The potential risks and benefits of different fixation periods

The current interest rate environment and potential future changes

Your ability to refinance your loan if interest rates rise

By carefully evaluating these factors and considering your options, you can make an informed decision about your Sollzinsbindung and ensure that you're getting the best possible deal for your mortgage.

Additional Considerations

Some additional considerations to keep in mind when choosing a Sollzinsbindung include:

The potential impact of inflation on your mortgage payments

The benefits of making extra payments or paying off your loan early

The potential risks and benefits of variable-rate loans

The importance of reviewing and adjusting your mortgage strategy regularly

By taking the time to carefully consider these factors and options, you can create a personalized mortgage strategy that meets your unique needs and goals.

Conclusion

In conclusion, choosing the right Sollzinsbindung period is a critical decision that can have a significant impact on your mortgage payments and overall financial situation. By understanding the pros and cons of different fixation periods, considering your individual circumstances, and evaluating the potential risks and benefits, you can make an informed decision that works best for you. Remember to stay informed, review your options regularly, and adjust your strategy as needed to ensure that you're getting the most out of your mortgage.