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10 Most Significant Factors that Influence Interest Rates in Germany 

Several factors impact interest rates in Germany. If you have decided to settle in or to spend a considerable time here, for a job or other purposes, and wish to get a loan so that you can buy a house, or an apartment –use the information shared here. Take a well informed and mature decision! 

Now take a quick look at the 10 factors that impact interest rates in Germany!  

10 Most Important Factors that Affect Interest Rates in Germany 

  1. Current Market Rates: Current market rates will impact the interest rates the most. Unfortunately there’s no way to influence this. Your home loan consultant will know whether the rates of the banks are increasing / decreasing in the next couple of days and will be able to guide you.  
  1. The Loan Amount & the Term of the Loan: How much you plan to take as a loan–this is important from the viewpoint of fixing the interest rate for you by the bank. Some banks in Germany have a threshold of 50k, 100k, 150k EUR. In case you want to take a loan less than that figure, don’t be surprised if the banks refuse to give you a loan or increase the interest rate. If we talk about the terms of the loan,  banks decide the rates on the basis of the 5, 10, 15 year terms– and depending upon what’s important to you, security, paying off the loan fast, etc. you might want to change the term to adjust to your specific needs.  

3. Valuation of the property & loan to value: Banks will always like “to be on the safer side”. If you’re purchasing a property that’s valued at, say, 700k, and for this, you need a loan of 700k, banks will call this is a 100% finance. If the property is valued at 600k, and you require a loan of 360k, then your lending bank won’t be so uncomfortable (= 60% financing). They’d always chose the lesser risk option for them and pass on the reduced risk in form of a lower rate of interest rate to you. 

4. Credit Rating (Schufa): Your credit score is a vital element that can influences your interest rate. While at some banks the credit score is a gating criteria to get a (home) loan in the first place, at other banks buyers with higher credit scores get lower rates of interest, compared to those with comparatively lower credit scores. Credit scores are calculated on the basis of the information in your credit report, which reveals the details about your credit background (Watch our video on credit rating here), and this includes your loans, credit cards, not to mention payment background. So, prior to beginning mortgage hunting, check your credit, and appraise your credit reports for mistakes, if any. In case you come across any such mistakes, bring it to the notice of the concerned credit reporting firm fast.  

5. Available Securities: It’s all about cutting down the risk for a bank. If you can produce more securities before your banks, or show that you have some other property in Germany, the interest rates will be somewhat lower for you. 

6. Net Sustainable Household Income: The more the total household income you have, the lower risk will be for the bank, and, as a result, the lower rate of interest for you. The banks also look at the probationary time-frame. In case you are doing a job, and serving your probationary period for it, the banks will see it as a risk, and as a result, charge higher rates.  

7. Usage: What’s your purpose of acquiring the property? This will also impact the rates. Banks often see “own use” as a less risky option and see the properties–acquired for the object of investment–as a higher risk. Reason for this is that tenants may not pay the rent on time, or you might not have back-to-back tenants- your lending bank will consider this, and it will mean a higher rate of interest for you.  

8. Terms & Conditions: The specific terms and conditions will also affect the rates. You might get the option of paying a lump sum per annum. In most cases   that is 5% of the initial principal. In case you don’t require that flexibility you may ask your bank to remove that part – decreasing your flexibility but also increasing the profit options for the bank – and thereby decreasing the interest rate for you. 

09. Speed of Repayment of the loan: Some banks may express an interest in getting a principal repayment of 2%. Then some other banks may want principal repayment of 2.5%. Those banks  might reduce the rate of interest as you are decreasing their risk at a faster pace.. Get in touch with your home loan advisor! He will guide you properly.  

10. Own Equity: The most important point in cutting down the risk for the banks is to bring in your own equity. The more equity you bring in, the less will be the risk for the bank, and as a result, the less will be the rate of interest for you. 

We’ve recently put up a video on Youtube on this very same topic.  

Video – 10 Factors that influence the interest rates in Germany | Ajay Dhingra | Ghar In Germany