Residential Riester: Using tax advantages without further subsidies?

We have also decided against Wohnriester in the loan - for the above-mentioned reasons.

At the moment, I am still undecided whether to withdraw the 20,000€ that we already have in 2 Riester bank savings plans as Wohnriester or to terminate the contract in a way that disqualifies the subsidy.

As far as I understand Wohnriester, you receive 154 euros per person plus a fixed 300 euros per child. Alternatively, there is the option to claim up to 2100 euros as special expenses. Assuming a normal-earning family with one child (building at age 35), they get 608 euros per year in subsidies, so typically over a 25-year loan term, 15,200 euros. However, these do not have to be repaid, only taxed.

With the 2% interest, after 25 years, 19,900 euros have accumulated, which are then assumed to be further invested for 7 more years until retirement at 67, resulting in 22,800 euros. Taxes must then be paid on this amount at the individual's tax rate. Even those who would have to pay the top tax rate would only have to repay 47.48% of this sum, i.e. about 10,800 euros, with the average earner likely considerably less... and currently there is also a 30% discount on this amount if it is repaid in one lump sum.

That seems like a worthwhile deal to me at first glance, or am I overlooking something essential here (aside from possibly higher interest rates for the Riester loan, of course)?

You misunderstood something!
Not the subsidy, but the entire amount paid in goes into the housing promotion account.
25 years x €2,100 + 2% interest p.a. results in an account balance of:
€68,809 after 25 years. After another 7 years, it is around €79,000.

That would then be taxable, at the top tax rate, so about €26,000 one-time payment!

Now the matter looks different, doesn’t it?

The thing with the top tax rate was merely an exaggeration - who actually pays that? Even with 15,000,- gross per month, you don't actually exceed 40% effectively.

But the idea is also that in old age you generally have a lower tax rate. If we calculate your example with a more realistic (effective) tax rate in old age of say 25% (and that already implies more pension than is possible through the statutory pension insurance!), you end up with 20,000,- or 14,000,- Euro "repayment" and pocket between 5-9 thousand Euro.

Landing in the top tax rate, yes... actually paying it on the entire income, no. That is what I mean by "effectively."

Marginal tax rate =/= average tax rate