Annuity Loan
An annuity loan is a loan with constant monthly payments, where the ratio of interest and principal portions shifts over the term.
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Detailed Explanation
The annuity loan is the most common loan type in Germany, especially for mortgages. The monthly payment (annuity) remains constant during the fixed-rate period.
How it works: - At the start: High interest portion, low principal portion - Over time: Decreasing interest portion, increasing principal portion - The total payment remains the same
Advantages: - Planning security through constant payments - Simple household budgeting - Automatically increasing principal repayment
Disadvantages: - High total interest costs over long terms - Interest rate risk after fixed-rate period ends - Less flexible than straight-line repayment loans
Fixed-rate period: Typical fixed-rate periods are 5, 10, 15, 20, or 30 years. Longer periods mean more security, but often higher interest rates.
Calculation Formula
Annuity = Loan amount × (Interest rate + Repayment rate)Practical Example
With 200,000 EUR, 3% interest and 2% repayment, the annuity is 10,000 EUR/year (833 EUR/month). In the first year: 6,000 EUR interest, 4,000 EUR principal.
Legal Basis
§488 BGB (Loan agreement)