0.1%, 1%, 1.5% or 2% Tilgung: what changes for a rental investor?

The repayment rate you choose changes two things: how much leaves your account each month, and how much you still owe when the fixed interest rate ends. It does not change the rent, the service charge or the apartment's yield. On an illustrative €250,000 loan at 4 per cent, moving from 2 per cent to 1 per cent initial repayment lowers the monthly payment by about €208. After ten years, you have kept €25,000 more in cash and owe €30,677 more to the bank.

That trade is the whole question. A lower repayment rate buys liquidity now with debt later. This guide works through four rates on one loan, including 0.1 per cent, which is kept here as a hypothetical comparison because lenders rarely offer anything below 1 per cent.

A German mortgage is usually an annuity loan (Annuitätendarlehen). You pay a fixed monthly amount, the Annuität, for as long as the interest rate is fixed (Sollzinsbindung), often 10 or 15 years. Each payment has two parts:

• Interest (Zinsen), charged on the debt still outstanding.
• Repayment (Tilgung), the part that reduces the debt.

Because the payment stays constant and the debt falls, the interest share shrinks each month and the repayment share grows (Interhyp). The debt still owed at any point is the Restschuld.

German loan offers usually quote an initial repayment rate (anfängliche Tilgung or Anfangstilgung) as a percentage of the loan. Together with the interest rate, it fixes the payment:

Monthly payment = loan × (interest rate + initial repayment rate) ÷ 12

The word "initial" matters. The rate describes only the first year's repayment. After that, repayment grows as interest falls, so a 2 per cent loan repays more than 2 per cent of the original sum in later years. Do not multiply the initial rate by the number of years to estimate what you will have repaid. Use a repayment schedule (Tilgungsplan).

Illustrative example. Fictional loan, not a live offer. Inputs: loan €250,000; 4.0 per cent nominal annual interest, fixed for 10 years; monthly payments; no fees, no special repayments, no change of repayment rate.

Figures from a monthly amortisation schedule, rounded to the euro except the payments. The last row is theoretical: your rate will almost certainly change after the fixed period.

Three points stand out.

The first month's interest is identical. Every loan starts with €833.33 of interest. The whole difference in the payment is repayment.

At 0.1 per cent, the loan barely moves. After ten years and €102,500 of payments, the debt has fallen by about €3,000. The payment is close to interest-only. Interhyp states that financing with less than 1 per cent initial repayment is hardly offered (Interhyp). Treat this column as a reference point, not a mainstream option.

The gap widens over time. At 2 per cent, repayment has grown from €417 to €619 a month by year ten. At 1 per cent, it has grown from €208 to €310.

The comparison with 2 per cent over the fixed period:

In each column, the extra debt equals the cash kept plus the extra interest. The money you keep each month is borrowed at the loan rate. That is reasonable if the cash does a specific job, such as building a property reserve that you would otherwise not have. It is expensive if it simply disappears into everyday spending.

When the fixed rate ends, the remaining debt needs follow-on financing (Anschlussfinanzierung) at whatever rate is available then. The repayment rate you choose today sets the size of that debt.

Illustrative example, continuing the loan above. Payment needed to repay the remaining debt over a further 20 years, at two assumed refinancing rates. These are not forecasts.

Two readings of the same table. If you want the loan repaid in about 30 years overall, a low starting rate pushes a much larger payment into year eleven. And even the 2 per cent borrower faces roughly the same payment at 5 per cent as today, only because the debt is smaller. The low-repayment borrower carries the higher rate on a larger balance.

This article isolates the repayment choice. For the wider test of household income, vacancy and refinancing together, see job loss and mortgage refinancing.

The property's operating performance. Rent, the service charge (Hausgeld), management and repairs are the same in all four columns. A lower payment improves monthly cash flow, but the apartment earns no more. Gross and net yield are unaffected. See rental property cash flow in Germany.

Tax, in the way people often hope. For a rental property, loan interest is generally a deductible expense against rental income (§ 9 EStG). Repayment of principal is not. A lower Tilgung means more interest and so a slightly larger deduction, but a deduction reduces tax at your marginal rate; it does not refund the cost. At an assumed 40 per cent marginal rate, the extra €5,677 of interest at 1 per cent could reduce tax by roughly €2,271 over ten years. You would still have paid €5,677. The benefit arrives with the annual assessment, not monthly. See rental property tax benefits in Germany.

The size of the debt you took on. A low repayment rate is sometimes combined with high borrowing, including 100% financing. Together they leave very little margin if the property's value falls or you need to sell during the fixed period.

What lenders offer. Interhyp describes 1 per cent as the usual minimum and calls 1 per cent offers something to treat with caution. It recommends at least 2 per cent (Interhyp: annuity loans; Interhyp: repayment rate). It also reports that average initial repayment fell from 3.4 per cent in 2016 to about 2.2 per cent in 2024, as prices and interest rates rose. Whether a lender accepts a given rate for your loan, and on what terms, is its decision.

Changing the rate later. Many lenders allow a change of repayment rate (Tilgungssatzwechsel) one or more times during the fixed period, sometimes free of charge, but the option should be agreed in the loan contract (Interhyp lexicon). Check how many changes are allowed, the permitted range and any fee or interest surcharge. Without the clause, you cannot assume the lender will agree.

Special repayments. A right to repay extra each year (Sondertilgung) lets you start lower and reduce the debt when cash allows. Interhyp says 5 per cent of the loan a year is often granted without charge, with higher amounts usually costing extra (Interhyp). Whether to use spare cash that way or keep it as a reserve is a separate decision; see Sondertilgung or a cash reserve.

The two options combine. Starting at 2 per cent with the right to lower it gives a fall-back in a difficult year. Starting at 1 per cent with the right to raise it relies on discipline later.

There is no universally best repayment rate. These questions narrow it down:

1. Can you carry the payment in an adverse month? Test the full payment against an empty apartment and a repair, paid from your property reserve.
2. What debt will you accept at the end of the fixed period? Read the figure from the repayment schedule and apply a higher rate to it.
3. When do you want the debt gone? Compare the theoretical term with your age and retirement plans.
4. What will the lower payment pay for? If the answer is a reserve, name its size and where it sits.
5. How long might you hold the property? On a sale, the remaining debt comes out of the proceeds first.

Answering these is easier before you commit to a property than after. Alpha Minoris's Buyer's Agent service starts with your budget and borrowing capacity, and during a purchase in Berlin, Dresden or Leipzig it helps coordinate the financing. That includes putting repayment options side by side against the monthly figure your household can sustain. The loan terms themselves are set by the lender.

Is 1% Tilgung too low?

For many borrowers, yes. At 4 per cent interest, it leaves about €219,000 of a €250,000 loan outstanding after ten years and a theoretical term of about 40 years. It can fit a deliberate plan with a reserve and a clear refinancing budget, but it is not a way to make an unaffordable property affordable.

Is 0.1% Tilgung a real option?

Treat it as hypothetical unless a lender puts it in writing. Interhyp reports that repayment below 1 per cent is hardly offered. At 0.1 per cent, the loan is close to interest-only and the debt barely falls.

Can I change my Tilgung during the fixed period?

Only if the contract allows it. Many lenders include a Tilgungssatzwechsel option, sometimes limited in number or range, sometimes with a charge. Ask for it before signing.

Is a low Tilgung better for tax as a landlord?

Not in itself. Only interest is deductible, and the deduction is worth your marginal tax rate times the interest, not the interest itself. Paying more interest to save tax leaves you worse off.

Does a lower Tilgung improve the rental yield?

No. It reduces the monthly loan payment and improves cash flow, but the property's rent and costs are unchanged. The difference reappears as higher debt.