German Mortgage

Understand How Age Affects Principal Rate

How does age play a role in determining your principal rate?

The borrower’s age is critical in determining their mortgage principal rate. This is because the lender has to calculate the risk of the mortgage not being repaid. Most lenders calculate your ability to repay the home loan by taking into account your retirement age. Therefore, the shorter the time to retirement, the higher principal rate should be paid.

The above illustration gives a clear example of how age plays an important role in determining your initial principal rate.

The principal and interest payment are the main components of your monthly mortgage payment. The principal is the amount you borrow and have to pay back. And interest is what the lender charges you for borrowing the money.

To put simply, anyone who is 30 today and wants to be debt-free at the age of 65 can pay a much lower principal payment than a 50-year-old who takes up a home loan of the same amount.

The lower the principal rate, the longer the mortgage term

Moreover, the lower the initial principal rate, the longer time you need to fully repay the home loan. For example, with an interest rate of 1.5 percent and an initial repayment of 2.35 percent, it takes over 30 years to repay a loan of 350.000€. With an initial principal rate of 3.21 percent, you need about 25 years for the same loan amount. And it would take almost 40 years for a repayment rate of 1.74 percent.

Based on the illustration, it shows that low principal rate means it would take longer to repay the mortgage in full. This is because, when the repayment rate is low, the repayment portion also rises more slowly than at higher repayment rate. This implies you need more time to be debt free, assuming you have the same loan amount as someone else with a higher principal rate.

How does amortization work?

In the early stages of your mortgage, you should plan on paying back much more interest than principal. The reason for this can be explained as follows.

By regularly repaying your loan, the remaining debt decreases during the term more and more as time goes by. The monthly rate remains constant over the course of the home loan. And the interest portion decreases while the principal payment increases. This is because the overall annuity rate remains constant. The redemption portion of the savings portion of the interest increases continuously.

Read also: Mortgage in Germany: What non-residents should know

How to find out your principal rate?

To find out how much you’d repay monthly and how long your mortgage term will be, try using an online mortgage repayment calculator. By entering simple information such as the purchase price, your down payment, the location of your property and your desired repayment rate, then you will receive a free and accurate estimate of how much you may borrow and your repayment plan over the course of the home loan. It will also provide a mortgage’s amortization schedule, which provides a detailed look at what you would pay in a certain period of time.

Your mortgage repayment plan should fit as closely as possible to your personal and financial needs and your wish on the time of repaying all your debt. Our mortgage experts are familiar with every aspects of home financing and purchasing in Germany and are always available to give you constructive and informative advices. Speak with our mortgage experts now to ensure you are in very capable hands.

We are happy to answer any questions. Via email at or by phone 0800 05 28000. You can also start with the LoanLink mortgage illustrator here:

Got a question about how to get a mortgage pre-approval or the home purchase process in Germany? Contact us!

Join our newsletter for mortgage tips!


By entering your details, you agree with the following: