Fixed interest rate

Fixed-rate period - The fixed-rate period refers to the contractually agreed-upon timeframe during which the interest rate on a mortgage remains unchanged, protecting the borrower from rising market interest rates during this period.

What does a fixed-rate period mean in mortgage financing?

When a mortgage is taken out, the bank and the borrower agree on a fixed interest rate for a specific period. This period is the fixed-rate period. During the fixed-rate period, the monthly payment remains constant, regardless of how market interest rates change. Typical fixed-rate periods are 5, 10, 15, 20, or 30 years, with 10 and 15 years being the most commonly chosen options.

Choosing the fixed-rate period is one of the most important decisions in mortgage financing. As a general rule: the longer the fixed-rate period, the higher the agreed-upon interest rate, since the bank must hedge against the risk of rising interest rates over a longer period of time. In practice, the interest rate premium for a 15-year fixed-rate period compared to a 10-year one is often 0.2 to 0.4 percentage points. In return, the borrower gains planning security and protects themselves against the interest rate risk associated with refinancing.

Once the fixed-rate period expires, the remaining debt is usually not yet fully repaid. Refinancing then becomes necessary, for which the prevailing market interest rate at that time applies. There are two options available: renewal, i.e., extending the existing loan with the current bank under new terms, or refinancing with another bank that offers more favorable interest rates. Those who wish to secure their rates early can take out a forward loan, which locks in the interest rate for the follow-up financing up to 60 months in advance, albeit for a forward premium.

A particularly important tool for borrowers is the special right of termination under Section 489(1)(2) of the German Civil Code (BGB): Regardless of the agreed fixed-rate period, any borrower may terminate their loan after ten years have elapsed since full disbursement, with six months’ notice, without incurring an early repayment penalty. This right also applies to fixed-rate periods of 15, 20, or 30 years and opens up the possibility of refinancing at a lower rate when market interest rates have fallen.

Choosing the Right Fixed-Rate Period

The optimal fixed-rate period depends on current interest rate levels and individual risk tolerance. During periods of low interest rates, we recommend a fixed-rate term of 15 to 20 years to permanently lock in the favorable interest rate. During periods of high interest rates, a shorter fixed-rate term of 5 to 10 years may make sense if falling interest rates are expected, as this allows for better terms when refinancing.

A combination of a long fixed-rate period and a high special repayment option offers the greatest flexibility: The monthly payment remains predictable, and at the same time, the remaining debt can be paid down more quickly if financial resources allow. Those who want additional security can choose a full repayment loan, where the fixed-rate period corresponds exactly to the loan term and no refinancing is necessary.

Practical Tip for Buyers in Nuremberg and Franconia

In the Nuremberg metropolitan region, the average loan amount for residential real estate is often between 250,000 and 450,000 euros. With these amounts, even small differences in interest rates over the term add up to a significant sum. We recommend that buyers in Nuremberg, Fürth, Erlangen, and the surrounding area calculate at least three financing offers with different fixed-rate periods and compare the total costs over the full loan term, not just the nominal interest rate.

Franconian savings banks and cooperative banks often offer special regional terms that are not always reflected on national comparison portals. In addition, Section 489 of the German Civil Code (BGB) should be taken into account when planning: Anyone who chooses a 15-year fixed-rate period can terminate the loan free of charge after ten years and refinance at more favorable market rates. Our network of experts advises on the optimal fixed-rate strategy in the context of the current market situation.

Frequently Asked Questions

Can I terminate my loan before the fixed-rate period expires?

Within the first ten years, termination is only possible with the bank’s consent and upon payment of an early repayment penalty. After ten years have elapsed since full disbursement, the special statutory right of termination under Section 489 of the German Civil Code (BGB) applies: Borrowers may terminate the loan with six months’ notice without having to pay a penalty. This right cannot be waived by contract.

What happens after the fixed-rate period expires?

After the fixed-rate period expires, the remaining balance must be refinanced at the market interest rates in effect at that time. The current bank typically submits a renewal offer. We recommend comparing this offer with terms from other banks, as switching often results in better interest rates. It is important to plan for follow-up financing at least six to twelve months before the fixed-rate period expires.

Is a forward loan worth it for interest rate hedging?

A forward loan locks in the current interest rate for future refinancing and makes sense if rising interest rates are expected. The forward premium is typically 0.01 to 0.03 percentage points per month of lead time. For a 36-month forward, this results in a premium of 0.36 to 1.08 percentage points. Whether this is worthwhile depends on your individual interest rate forecast.

Fixed-Rate Periods and Energy Efficiency: Planning for Subsidy Programs

Anyone in the Nuremberg metropolitan region who is buying an existing property or already owns one and is planning an energy-efficient renovation should coordinate their fixed-rate strategy with their subsidy planning. KfW federal subsidy programs (BEG - Federal Subsidy for Efficient Buildings) offer low-interest loans and repayment grants that can be used for follow-up financing or refinancing. If a loan with a long fixed-rate period is paid off before the energy-efficiency renovation is complete, the owner may miss out on the opportunity to combine KfW subsidies at favorable terms.

We recommend that owners in Nuremberg and Franconia also take planned modernization measures (heating system replacement, insulation, window replacement) into account when choosing the fixed-rate period. A fixed-rate period that expires just as a major renovation is due allows for a clean restructuring of the overall financing-often combined with a KfW loan at preferential terms. The regional savings banks and cooperative banks in Franconia are well-positioned to combine standard amortization loans with KfW funds and often offer bundled financing packages.

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