Annuity loans are the most frequently selected loan variant with the construction financing. This is usually a medium- to long-term bank loan with constant interest and repayment installments (annuity). Unlike some other loan options, annuity loans are simple and straightforward (once you understand the basic principle).

## How does an annuity loan work??

With an annuity loan, the monthly interest and repayment rate is calculated at the very beginning. here is a simple example:

- Loan amount 100.000 euros
- Debit interest rate: 5% per annum
- Repayment rate: 1% annually
- Annual annuity: 6.000 euros : 12 months = 500 euros monthly installment

This rate is debited from the account every month after the loan has been disbursed. And each month is then billed to the day. Thereby the remaining debt of the loan decreases a little bit every month. And since the interest is calculated only on the actual remaining debt, less interest is payable each month. However, since the rate remains unchanged, the repayment portion automatically increases. This is also the reason why it is always called "initial" repayment in offers or contracts.

## What fixed interest rates are possible with annuity loans?

Variable interest rates or fixed interest rates from 1 to 30 years are possible.

## How high is the repayment for annuity loans??

The repayment is made through the repayment included in the loan installment (z.B. 1, 2 or more percent of the loan amount). Repayment rates of up to 5% per annum are usual.If an annuity loan is repaid in full by the installments within the fixed interest period, it is referred to as a full repayment loan.

## What unscheduled repayments are possible with annuity loans?

In the case of variable interest rates, unscheduled repayments are possible at any time and in any amount with 1-3 months' notice; in the case of loans with agreed fixed interest rates, unscheduled repayments are only possible if they have been expressly agreed in the contract. A special repayment option of 5 percent per year is customary. But there are also banks that offer an unscheduled repayment option of up to 10% annually. And we even have providers with a 100% unscheduled repayment option.

## Flexibility through change of repayment rate

The rates for an annuity loan can now be adjusted by many providers to changing life circumstances. The repayment rate (and thus the total rate) can be changed – depending on the provider different frequency. The most common is the possibility of being able to change the repayment rate 2x during the fixed interest rate period.

## What are the advantages of annuity loans?

Annuity loans are the classic way of financing owner-occupied housing; with a corresponding fixed-interest period, the result is a constant monthly charge with a precisely calculable residual debt at the end of the fixed-interest period. Since the rates remain the same even with unscheduled repayments, these act as a "repayment turbo.

## What are the disadvantages of annuity loans??

There is an interest rate risk after the expiry of the fixed interest rate, but this can be reduced to zero by an appropriately long debit interest lock-in period. With variable loans one has the risk of rising interest and thus rising load. For the financing of rented real estate, annuity loans are not always the best solution in purely mathematical terms due to the falling interest rate and the rising redemption portion.

## Which variants of annuity loans are available??

There are different variants of "normal" annuity loans for example:

## What are the alternatives?

Due to the recent sharp rise in interest rates, a so-called "fixed interest rate" is possible. repayment-free loan in combination with a building savings contract (combined loan) an attractive alternative to the classic annuity loan. However, this only applies as long as the building societies maintain the current interest rates for building society loans. If the building societies increase the interest rates, combined loans will become more attractive. do not calculate more.