Fixed-rate mortgage

A long-term fixed-rate mortgage refers to a contractual agreement to fix the interest rate on a real estate loan for a period of typically ten to thirty years. During this time, the monthly payment remains constant, regardless of how interest rates in the capital markets change. A long-term fixed-rate period offers maximum planning security but comes with a higher interest rate compared to shorter fixed-rate periods, as the bank factors in the interest rate risk over the long term.

Advantages of a long-term fixed-rate period

• Planning security: Monthly payments remain constant for decades-regardless of interest rate increases in the capital market
• Protection against rising interest rates: Those who enter into a 20-year fixed-rate agreement during a period of low interest rates are fully protected against interest rate hikes
• Simpler household budgeting: Fixed payments facilitate long-term budget planning; no unexpected refinancing
• Attractiveness to lenders: Banks view long-term fixed-rate loans as predictable assets; this can result in stable terms

Disadvantages and Risks

• Interest premium: Long-term fixed-rate loans typically cost 0.3 to 1.0 percentage points more than short-term fixed-rate loans
• Less flexibility: Early repayment (e.g., upon sale) requires a prepayment penalty, which can be substantial for long remaining terms
• Interest rate risk: If market interest rates fall, the borrower does not benefit-the installment remains at the higher level
• Special right of termination: After a ten-year term, Section 489 of the German Civil Code (BGB) provides a statutory special right of termination with a six-month notice period-an important safety net

When does a long-term fixed-rate period make sense?

A long-term fixed-rate period is recommended if:

1. Interest rates are at historically low levels and increases appear likely
2. The property is not expected to be sold in the foreseeable future
3. There is little equity buffer, and interest rate increases would pose a financial threat
4. The property is intended as a long-term retirement investment

Fixed-Rate Period and Early Repayment Penalty

An often underestimated issue is the early repayment penalty for prepaying a loan. This fee compensates the bank for the lost interest income until the end of the fixed-rate period. For a 20-year loan with ten years remaining, the prepayment penalty can easily amount to 20,000 to 50,000 euros or more-depending on the loan amount, the remaining interest rate, and the current market rate. Anyone planning to sell their property before the end of the fixed-rate period should factor this cost into their calculations. Alternatively, the loan agreement can stipulate that the loan can be transferred to the buyer upon sale (assumption of debt)-this saves the prepayment penalty but requires the bank’s consent.

Fixed-Rate vs. Variable-Rate Loans

In addition to long-term fixed-rate loans, there are variable-rate loans whose interest rate is tied to a reference rate (typically the EURIBOR) and adjusts regularly. During a period of falling or low interest rates, a variable-rate loan can be more affordable-but in times of rising interest rates, such as in 2022/2023, the additional costs can be painful. Many borrowers therefore choose a middle ground: a 10- to 15-year fixed-rate period combined with a high agreed-upon special repayment option (5 to 10% per year) to maintain flexibility and pay down the loan more quickly.

Practical Tip for Homeowners in Nuremberg and Franconia

Given the rise in interest rates since 2022, homeowners in the Nuremberg region whose refinancing is due in the coming years should carefully consider the length of the new fixed-rate period. Those who still have a loan from the low-interest-rate period of 2015 to 2021 should keep in mind the special right of termination after ten years pursuant to Section 489 of the German Civil Code (BGB): If the loan was taken out with a 20-year fixed-rate period, it can be terminated after ten years with six months’ notice without prepayment penalties and renegotiated under the terms in effect at that time.

For buyers securing financing today, we recommend a thorough model calculation of various scenarios: What happens if interest rates drop by two percent in five years? How does a long-term fixed-rate period compare in terms of cost? We are happy to facilitate contact with experienced financial advisors in the greater Nuremberg area who provide independent advice without any product affiliation and develop the optimal financing plan from a broad network of lenders-ranging from Sparkasse Nürnberg and LfA Förderbank Bayern to direct banks.

Frequently Asked Questions

When is a fixed-rate period considered “long-term”?

There is no legally defined limit. In financing practice, a fixed-rate period of ten years or more is considered long-term; 15 and 20 years are the most common terms. Some providers also offer 25- or 30-year fixed-rate terms. A 30-year fixed-rate term is economically equivalent to total financing without a refinancing risk-for buyers who prioritize maximum security, this can make sense, even if the interest premium is noticeable.

Can I repay the loan early with a long-term fixed-rate period?

Yes, after ten years of the loan term, there is always a statutory special right of termination (Section 489(1)(2) of the German Civil Code (BGB)) with a six-month notice period, without an early repayment penalty. Before the ten-year period expires, an early repayment penalty is due, which the bank calculates using either the asset-liability method or the asset-asset method-whichever is more favorable to the borrower must be applied.

Which is better: a 15-year or 20-year fixed-rate period?

That depends on the interest rate differential, your personal interest rate outlook, and the planned useful life of the property. If the interest rate differential between 15 and 20 years is small, planning security favors the longer fixed-rate period. If the additional cost is significant, it is worth performing a detailed model calculation that runs through both scenarios-constant interest rates and rising interest rates.

How does the fixed-rate period affect purchasing power?

While longer fixed-rate periods cost more per month (due to the interest premium), they allow for more stable and predictable financing. During the bank’s credit check, the monthly payment for the requested financing is compared to your available income. A higher interest rate resulting from a long fixed-rate period can, in extreme cases, lead to a slight reduction in the maximum loan amount. Those working with a tight budget should therefore calculate the various fixed-rate scenarios together with their financial advisor.

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