Mortgage

Real estate loan - A real estate loan is a long-term loan secured by a lien (land charge or mortgage) on a property, with a loan-to-value ratio that does not exceed the 60% loan-to-value limit. This first-lien security within the 60% limit distinguishes a real estate loan from unsecured personal loans and subordinated loans, and enables the most favorable interest rate available in mortgage financing.

LTV and the 60% Limit

The LTV is a conservatively determined, sustainable value of the property that is lower than the market value (typically 80-90% of the market value). The 60% limit refers to this LTV. Example: With a market value of €500,000 and a loan-to-value ratio of €425,000, the real estate loan limit is €255,000 (60% × €425,000). Financing within this limit is considered particularly secure under regulatory standards and is used by mortgage banks for mortgage-backed coverage. This allows these loans to be refinanced at particularly favorable rates-which translates into lower interest rates for the borrower.

Significance for Mortgage Financing

In practice, the real estate loan is the core component of any real estate financing. It offers the lowest interest rates, the longest fixed-rate periods (up to 30 years), and the most secure terms. If the financing requirement exceeds the 60% limit, the portion exceeding this is financed as a personal loan (1a loan) or a subordinated loan-at higher interest rates because the risk for the bank increases. The total financing then consists of a real estate loan (first lien, up to 60%) and one or more supplementary loans.

Real Estate Loans and Pfandbriefe: The Refinancing System Behind Them

The favorable interest rate on real estate loans is no coincidence, but rather the result of a proven German refinancing system. Pfandbrief banks (mortgage banks) bundle their real estate loans into a cover pool and issue Pfandbriefe on the capital market based on this pool. Since Pfandbriefe are considered particularly secure securities-the Pfandbrief Act (PfandBG) imposes strict requirements on the quality of the cover pool-institutional investors (insurance companies, pension funds) accept low interest rates. This cost advantage is passed directly on to the end borrower.

Germany has one of the world’s oldest Pfandbrief systems; the first Pfandbriefe were issued as early as the 18th century. The stability of this system has proven itself even during crises (the 2008 financial crisis, the 2022 rise in interest rates)-Pfandbriefe have never been considered at risk of default. For borrowers, this means: The real estate loan is the most reliable and affordable form of real estate financing on the German market, backed by a proven institutional foundation.

Practical Tip for Homeowners in Nuremberg

We recommend that buyers in the Nuremberg metropolitan area pay attention to the 60% loan-to-value limit when planning their financing. Those who contribute at least 40% of the appraised value as equity (including closing costs) finance exclusively through real estate loans and receive the best terms. For a typical condominium in Nuremberg (purchase price €350,000, loan-to-value ratio approx. €300,000), this would require an equity contribution of approx. €170,000. Those with less equity should structure their financing to maximize the mortgage loan portion and minimize the more expensive supplemental loan.

In the current market phase (2025/2026), with interest rates having fallen moderately from their 2023 peak, real estate loans once again offer attractive terms-especially for long-term fixed-rate periods (15-20 years), which lock in current rates for the long term. In the Nuremberg metropolitan region, we work with experienced financing advisors who can help you develop the optimal real estate loan structure for your project-whether for the purchase of a condominium, a multi-family home, or for the refinancing of an existing property.

Frequently Asked Questions

What distinguishes a real estate loan from a mortgage loan?

Terminologically, real estate loans and mortgage loans are often used synonymously, but there is a subtle difference: A real estate loan is subject to the 60% loan-to-value limit and receives preferential regulatory treatment (eligibility for mortgage-backed securities, lower equity requirements from the bank). A mortgage loan, on the other hand, can exceed the 60% limit. In practice, senior loans up to 60% are referred to as real estate loans, while loans with higher loan-to-value ratios are considered mortgage loans with increased risk.

Why is a real estate loan cheaper than other loans?

Three reasons: First, the default risk for a loan-to-value ratio of up to 60% is statistically very low-even with significant declines in market prices, the collateral is sufficient. Second, Pfandbrief banks can use these loans to issue Pfandbriefe and thus refinance at favorable rates on the capital market. Third, banks are required by regulation to hold less capital for real estate loans. The bank passes these advantages on to the borrower in the form of lower interest rates.

Can I move into the real estate loan category later on?

Yes, special prepayments or regular repayments reduce the remaining debt. As soon as it falls below the 60% limit, you can negotiate better terms during a loan extension or refinancing. Some banks automatically adjust the interest rate when the loan-to-value ratio falls below the threshold-be sure to actively ask for this so-called loan-to-value discount. An increase in the property’s value also improves the loan-to-value ratio and can lead to more favorable terms during renegotiation.

How does real estate loan financing for investors differ from financing for owner-occupiers?

For investors-that is, buyers of rental properties-the same basic principles generally apply to real estate lending as for owner-occupiers; however, banks additionally assess the sustainability of the achievable rental income. The loan-to-value ratio is often set more conservatively for investment properties than for owner-occupied properties, as the risk profile of a rented property (rental default, administrative costs, maintenance) is considered higher. Typically, banks require a loan-to-value ratio of no more than 70 to 75% of the mortgage lending value for investment property financing in order to remain within the real estate lending sector. In the Nuremberg metropolitan region, where purchase prices have risen significantly since 2010, this results in a real estate loan cap of 600,000 euros for a multi-family home with a purchase price of 1,200,000 euros and a loan-to-value ratio of approximately 1,000,000 euros. Investors who wish to use more debt capital must finance the additional amount at higher terms-which reduces the overall return on the investment accordingly. We recommend that investors clarify the financing structure with an independent financial advisor before submitting an offer.

Back to the Real Estate Glossary.