Annuity loan and amortization (Annuitätendarlehen, Tilgung, Zinsbindung)
An annuity loan is repaid with a level periodic payment during an agreed fixed-interest period. Each payment contains interest and Tilgung (principal repayment). As the outstanding balance falls, the interest share falls and the principal share rises. The Zinsbindung (interest-fixation period) can end before the loan is fully repaid, leaving a balance to refinance.
Why it matters
A constant payment can hide three moving parts: the cost of borrowing, the speed of debt reduction, and the refinancing exposure at the end of the fixed-rate period. Two loans with the same monthly payment can therefore leave very different balances.
This distinction also prevents a common rent-vs-buy error. Interest is an unrecoverable financing cost. Principal repayment is a cash outflow, but it reduces a liability and builds home equity; it is not consumed in the same way as interest.
The payment anatomy
For a standard annuity loan, each payment follows the same identity:
payment = interest on the outstanding balance + principal repayment
German mortgage offers often quote a Sollzins (nominal borrowing rate) and an anfängliche Tilgung (initial repayment rate). A useful first-year approximation is:
annual payment ≈ original loan × (borrowing rate + initial repayment rate)
The exact schedule follows the contract's payment frequency and interest convention. The approximation explains the structure but does not replace the lender's Tilgungsplan (amortization schedule).
| Term | What it controls | What changes over time |
|---|---|---|
| Sollzins | Interest charged on the outstanding balance | Fixed during the agreed Zinsbindung, then reset or refinanced |
| Tilgung | Reduction of principal | Euro amount normally rises inside a level payment as interest falls |
| Annuität | Total periodic payment | Normally level during the Zinsbindung if the contract is unchanged |
| Restschuld | Principal still outstanding | Falls with scheduled and permitted extra repayments |
| Zinsbindung | Period for which the borrowing rate is fixed | Its end can arrive before the Restschuld reaches zero |
Worked amortization example
Assume an illustrative €300,000 loan, a 3.6% nominal annual borrowing rate, a 2.4% initial repayment rate, monthly payments, and no fees or extra repayments.
The initial annual payment is approximately:
€300,000 × (3.6% + 2.4%) = €18,000, or €1,500 per month.
Using one-twelfth of the annual rate for this simplified schedule:
| Payment | Interest | Principal repayment | Balance after payment |
|---|---|---|---|
| 1 | €900.00 | €600.00 | €299,400.00 |
| 2 | €898.20 | €601.80 | €298,798.20 |
| 120 | about €643.04 | about €856.96 | about €213,488.57 |
The payment remains €1,500, but its composition changes. After 10 years, roughly €213,489 remains. If the Zinsbindung also ends then, the household must repay, renew, or refinance that Restschuld under the options and market conditions available at that time [1].
The result is illustrative. A real schedule can differ because of payment dates, day-count rules, fees, rate conventions, Tilgungssatzwechsel (repayment-rate changes), and Sondertilgungen (contractually permitted extra repayments).
How to compare two loan structures
Compare the same outputs, not only the advertised rate or monthly payment:
- Payment during the fixed period: Can the household carry it with a stress-tested budget?
- Balance at the end of Zinsbindung: How much remains exposed to future rates?
- Total interest over the comparison horizon: A lower payment can reflect slower principal reduction rather than lower cost.
- Effective annual rate and fees: The Sollzins alone does not capture every credit cost.
- Flexibility: Check contractual rights and limits for extra repayment, repayment-rate changes, transfer, and early exit.
- Refinancing scenario: Recalculate the remaining balance at lower, unchanged, and higher future rates.
Longer Zinsbindung can reduce near-term rate uncertainty but may be priced differently. Faster Tilgung lowers the Restschuld sooner but raises the current payment. The trade-off is current cash-flow flexibility versus future debt and refinancing exposure, not a universally optimal term.
Check yourself
What normally happens inside an unchanged annuity-loan payment as the outstanding balance falls?
A €250,000 loan has a 3.2% borrowing rate and 2.8% initial repayment rate. Using the first-year approximation, what is the monthly payment in euros?
Using a simplified monthly rate, how much is the first month's interest on €300,000 at 3.6% per year?
A Zinsbindung ends while a Restschuld remains. What has happened?
Sources
- Verbraucherzentrale — Immobilienfinanzierung: Diese Modelle gibt es und das sollten Sie beachten, https://www.verbraucherzentrale.de/wissen/geld-versicherungen/bau-und-immobilienfinanzierung/immobilienfinanzierung-diese-modelle-gibt-es-und-das-sollten-sie-beachten-5801 (accessed 2026)
- Deutsche Bundesbank — System of indicators for the German residential property market: mortgage rates and fixed-interest periods, https://www.bundesbank.de/en/statistics/sets-of-indicators/system-of-indicators-for-the-german-residential-property-market (2026)