Additional unscheduled payments to mortgage principle (outside of calculated principle payments)

[burningkrome 23]

We're looking to buy a home in the next couple of years. One question I haven't been able to get securely answered is whether additional, unscheduled payments can be made to the principle of a mortgage here in Germany. I'm not talking about the 1-10% additional anfängliche Tilgung that's already scheduled into the loan. 

 

For example, a sound repayment option for mortgages in the U.S. is to take out a standard annuity amortization (where the interest is paid first, and the principle second, on a diminishing schedule.) BUT, if you decide you have extra money during the month/year, you can pay this extra against the principle (ONLY) of the mortgage (in addition to the regularly scheduled amortized payment.) This payment can be spontaneous, and the lender cannot refuse to put the payment against the principle (versus against the interest.) Doing so is both a great way to buffer flexible income (I.e. take out a larger loan, longer term, with smaller payments - but pay extra every month when you can to reduce the larger expense of the interest.) 

 

Is this possible with mortgages in Germany?

[krakp 146]

Sondertilgung is the word you are looking for....

[kiplette 7,261]

Our Sondertilgung is paid annually, but it was agreed at the start, so I don't know if this is the first thing you describe or the thing you are looking for. 

 

The basic premise of the mortgage sounds similar to what you describe, thinking back to the chart things Bank Dude draws when I visit each year, but unfortunately I have no idea if the extra comes off the principle only.

 

@Starshollow is probably your man here.

[El Jeffo 39,338]

Any additional capital repayment (Sondertilgung, as krakp pointed out) must be agreed upon with the bank in advance and included in the loan contract.

 

Ask your bank for offers with and without Sondertilgung - you'll see that having the Sondertilgung option will increase the nominal (and effective) interest rate, usually by 1-2 tenths of a point.

 

If you know that you'll have the money for faster repayment, and don't just want to reserve the option for yourself because you're expecting (or hoping for) a windfall at some point, you're better off just increasing the initial repayment rate of the loan (Tilgungsrate) by a percentage point or two. This is also more advantageous to you as a borrower because it will tend to decrease the nominal (and effective) interest rate.

[burningkrome 23]

Thanks to all for the explanation of Sondertilgung. One additional clarification...if we must agree to Sondertilgung in advance, do we also have to agree to the amount of the Sondertilgung? I.e. Can we agree to a  Sondertilgung to be paid once a year, but the amount paid is dependent on how much additional we were able to set aside?

 

For me, it is less about expecting additional money in the form of a windfall, and more about making reserved conservative estimates. I.e. if a person expects they could afford (just as an example to make the math easy) €2000 a month payment, a cautious course of action is to set up payments at €1500 - and then, if indeed the extra €500 is there, then that €500 goes in as  Sondertilgun. But, if something causes the €500 to be used elsewhere, then no additional payment is made. 

 

Perhaps it's because I'm an American, where having sudden, unexpected, expenses is commonplace and can be cataclysmic  

[El Jeffo 39,338]

No, it's not a fixed amount. The terms specify a Sondertilgung of "up to" a certain percentage. So if that percentage is 5%, you can pay anything up to that amount.

 

You should also shop around: I mentioned that some banks charge extra for the Sondertilgung option, but some don't (for up to 5%/year at least).

 

There are many loan comparison sites out there - verivox.de, finanzcheck.de, finanztip.de are just a few. They all let you specify Sondertilgung as a search and comparison option.