Fixed annual interest rate

Fixed-rate period (fixed-rate term) refers to the contractually agreed-upon period during which the interest rate on a mortgage remains fixed-regardless of how general market interest rates change. Typical terms are 5, 10, 15, or 20 years; during periods of low interest rates, 30-year fixed-rate terms have also been offered. Choosing the right fixed-rate term is one of the most important and far-reaching decisions in real estate financing.

Short vs. Long Fixed-Rate Terms - Opportunities and Risks

The decision to choose a specific fixed-rate term is always a trade-off between planning security and interest costs:

Short-term fixed-rate period (5-7 years):

• Generally lower interest rate than for long-term periods (normal yield curve)
• Flexibility: If interest rates fall, the loan can be refinanced at a lower rate after the fixed-rate period ends
• Risk: If interest rates rise, there is a risk of a significantly higher subsequent interest rate; liquidity and planning risk

Long fixed-rate period (15-20 years):

• Complete certainty in calculations over a long period
• Protection against interest rate increases; particularly attractive during periods of low interest rates (such as 2015-2021)
• Disadvantage: Higher initial interest rate compared to short terms; risk of prepayment penalty if sold before the end of the fixed-rate period
• Special statutory right of termination under Section 489 of the German Civil Code (BGB): After 10 years (from the date the loan was fully disbursed), any borrower may terminate the loan free of charge with 6 months’ notice-even if the fixed-rate period is not yet over

Renewal and refinancing after the end of the fixed-rate period

The end of the fixed-rate period is a critical moment for every property owner:

• Renewal (extension with the same bank): The bank submits an offer 3-6 months before expiration. This does not have to be accepted; comparative offers should be obtained.
• Refinancing (switching to another bank): Often more favorable than renewal, as banks frequently offer better terms to new customers. Costs: Land registry fees for the transfer of the mortgage (approx. 0.3% of the loan amount).
• Forward loan: Up to 5 years before the end of the fixed-rate period, a follow-up loan can be arranged at interest rates agreed upon today. This provides planning security but incurs an interest premium (forward premium approx. 0.01-0.02% per month of lead time).

Fixed-rate period and prepayment penalty

Anyone wishing to repay the loan before the end of the fixed-rate period (e.g., due to the sale of the property) must pay the bank an early repayment penalty. This compensates the bank for the lost interest income until the end of the fixed-rate period and can be substantial for long remaining terms and large loan amounts. Exceptions: The statutory special right of termination after 10 years (§ 489 BGB) and agreed special repayment rights (typically 5-10% p.a. penalty-free).

The prepayment penalty is calculated using the asset-to-asset method or the asset-to-liability method, with banks permitted to choose the method that is more favorable to them. For a loan of €300,000 with 7 years remaining and an interest rate difference of 2 percentage points from the current market rate, the prepayment penalty can quickly amount to €20,000-40,000. This cost factor should definitely be included in the overall calculation when making sales decisions.

Fixed-Rate Period in Relation to the Repayment Structure

The choice of fixed-rate period also influences the optimal repayment strategy. Those who choose a short fixed-rate period should plan for a higher initial repayment (at least 2-3% per annum) to mitigate the refinancing risk through a significantly lower remaining debt. With long fixed-rate periods, the initial repayment can be lower (1-2% per year) if the interest rate security is utilized for the entire fixed-rate period.

Especially for investors who hold a property for rental purposes, coordinating the end of the fixed-rate period with the planned sale date is crucial: If the fixed-rate period ends shortly before a planned sale, the property can be sold without an early repayment penalty-a significant advantage over an early sale with a long remaining fixed-rate period. We recommend always planning the fixed-rate period in conjunction with a specific investment horizon.

Fixed-Rate Risk for Investment Properties - Rollover Risk

A risk that has been underestimated in the past is rollover risk: Anyone financing an investment property with a tight positive cash flow may face a shortfall when the fixed-rate period ends and follow-on interest rates are significantly higher. Specifically: With a loan of €250,000 and an interest rate increase from 2% to 4.5%, the annual interest expense rises from €5,000 to €11,250-an additional burden of €6,250 per year that can significantly strain cash flow or push it into the negative. This scenario must be calculated for various interest rate levels when purchasing an investment property in order to assess the viability of the investment.

Practical Tip for Property Owners in Nuremberg and Franconia

In the current interest rate environment (2025: approx. 3.5-4.5% for 10-year fixed-rate periods), we recommend that investors in the Nuremberg metropolitan region differentiate their approach based on their intended holding period: Those who plan to hold the property long-term (15+ years) benefit from a long fixed-rate period (15-20 years) for planning certainty. Those who plan to sell within 10 years should align the fixed-rate period with the planned sale timeline to avoid prepayment penalties.

Especially for multi-family homes in Nuremberg locations with purchase price multiples of 18-25, cash flow at acquisition is often barely positive or slightly negative-here, the risk of refinancing is particularly critical. Upon request, we coordinate financing comparisons through independent advisors from our Nuremberg network and work with you to calculate various fixed-rate and renewal scenarios.

Frequently Asked Questions

Can I terminate my loan during the fixed-rate period?

Only in exceptional cases: After a 10-year term (§ 489 BGB), always with 6 months’ notice and without compensation. In cases of a valid special right of termination (e.g., urgent personal need or in the event of death, divorce, or insolvency) under certain conditions. Otherwise, only upon payment of an early repayment penalty, which is often substantial in practice.

What fixed-rate term makes sense in Nuremberg in 2025?

In an environment with interest rates of 3.5-4.5%, the majority of financial experts recommend 10- to 15-year fixed-rate terms-long enough to provide planning security, but not so long that you remain locked into a rate that is too high in the event of potential interest rate cuts. The special right of termination after 10 years also provides flexibility in the event that interest rates drop significantly.

What does refinancing cost after the fixed-rate period ends?

The main costs arise from the transfer of the mortgage in the land registry (approx. 0.2-0.4% of the mortgage amount) as well as any appraisal fees charged by the new bank. These costs are generally quickly offset by interest savings over the remaining term if the interest rate difference is 0.3% or more. It is therefore almost always worthwhile to actively seek out comparative offers at the end of the fixed-rate period rather than automatically accepting the renewal from your primary bank.

How does a forward loan work, and when does it make sense?

A forward loan locks in today’s interest rate for a follow-up loan that does not begin for 12 to 60 months. The premium compared to a loan that starts immediately is approximately 0.01-0.02% per month of lead time-so for a 36-month lead time, the premium is approximately 0.36-0.72 percentage points. A forward loan makes sense if you expect interest rates to rise by the time your current fixed-rate period expires and you want the security of a fixed follow-up interest rate.

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