Question: 1% repayment and 10 years fixed interest rate. Will the house never be paid off?

A 10-year fixed interest rate is probably one of the most common financing durations you will find. This is partly because, regardless of the financing duration chosen, there is a special termination right after 10 years, which means that banks that refinance themselves today risk having to lend money again under worse conditions if a longer term is terminated early. Among other things, this circumstance is factored in by the bank, which causes long terms to be inherently more expensive than 10-year financings.

Since other things are more important in young years than a paid-off house, many start with a 1% repayment rate. It is important not only to go to your house bank and request an offer but to compare different institutions. There is also the possibility to finance part of the house purchase or new build through the [Kfw], which then provides a subordinated loan, making the conditions at the financing bank that holds the first rank significantly better. There are many ways to finance a house, which is why it is best to consult an independent mortgage expert, as they have a better overview of the conditions at the various institutions. For example, a friend of mine chose a cap loan, which basically has a variable interest rate but is capped at a certain level. The advantage is that you can repay the loan beyond the 5% special repayment. This is useful for self-employed persons whose income level can vary greatly.

I have dealt intensively with the topic because I bought a house myself two years ago and, due to my profession, occasionally have to arrange financing. By the way, up to three years before the end of the 10-year fixed interest period, one can refinance at, for example, the currently favorable conditions through a so-called forward loan.

When it comes to real estate financing, I somehow get the impression that having a fully paid-off house by retirement, or say in the age range of 60 to 65, is obviously not even desired?

Far too often, you read calculations with 1% amortization and a fixed interest period of 10 years. Then the monthly rate is nicely low, but you hardly pay off the loan at all! I don’t understand that people apparently calculate like that! What do they think will happen in 10 years? I’ll need the next financing then and my money has primarily gone into the interest.

Such loans even make a lot of sense if the loan amount is manageable (otherwise I would choose a longer term):

1. Low rate means security!
2. Such a contract should always include a proper special repayment arrangement. At least 5%, better 10% per year, because wages increase over the years.

As long as you are liquid, you can quickly reduce the loan amount by means of special repayments and drastically cut financing costs. If you have financial problems, the low rate protects you against forced auctions.

We concluded such a contract with a 10% special repayment option and agreed on the lowest possible rates. Now, in the second year, by fully and as quickly as possible utilizing the special repayments, we have already paid off almost a third of the loan amount, and given the low rates (500 euros), I can sleep very well!

So I would choose a fixed interest period of 25 years and in the end the house is completely paid off = full amortization. Am I probably way too conservative?

On the contrary, your model is rather risky, because it means high monthly rates that could seriously put you in trouble in case of doubt.

Whether its financing is risky or not can only be judged if one knows its financial situation and the exact details of the financing.

With an interest rate fixed for ten years and a high possibility of special repayments, there can be problems if the financial situation worsens. Then the special repayments simply do not happen, and at the end of the fixed interest period, the remaining debt is much higher than planned.

Security would rather be provided by possible repayment adjustments.

In the end, however, it is all a very individual matter!

Security would rather come from possible repayment adjustments.

Exactly. We currently have an offer with 1% repayment, which can be changed twice a year (up- and down-graded, depending on how much money is available), plus 5% special repayment once a year. Fixed interest period here is also only 10 years; we are considering whether to extend it to 15 years, which would mean 30 EUR more monthly payment for us. Not much in itself, but the question is whether it’s better to put that amount into the special repayment rather than throw it to the bank...

Whether his financing is risky or not can only be judged if one knows his financial situation and the exact details of the financing.

That's why I also wrote "rather risky". I could also have written "potentially riskier".

With an interest rate fixed for ten years and a high prepayment option, there can be problems if the financial situation worsens. Then the prepayments simply stop, and at the end of the fixed interest period, the remaining debt is much higher than planned.

At least you have time until the end of the fixed interest period (which can also easily be set to 15 or more years). If it becomes tight with a fixed higher rate, it can be over immediately.

Security would rather be provided by possible repayment adjustments.

Prepayment options are nothing else. Just much more flexible.

So, in my post, it was about the comparison of his financing and one with a ten-year fixed interest rate, where, as mentioned, the same problems can occur. And longer fixed interest period + high special repayment option also means higher interest/payment.

And for me, special repayment option and repayment adjustment are indeed different.