The ECB cut to 2.00%. Your follow-on mortgage did not get cheaper

On 5 June 2025 the ECB lowered its deposit rate to 2.00%, the eighth cut since June 2024, when the rate stood at 4.00%. German mortgage rates did not follow: a new loan fixed for up to ten years costs about 3.5%, slightly more than in December. A fixed-rate mortgage is priced off ten-year capital market yields, not off the ECB's overnight rate, and those yields rose this spring. An owner whose fixed-rate period ends in 2026 or 2027 should stop waiting for Frankfurt and decide three things: whether to buy a forward loan, what to do with special repayments, and how long to fix next time.

What the ECB decided, and what it did not move

The Governing Council cut all three key rates by 25 basis points with effect from 11 June: the deposit facility to 2.00%, the main refinancing rate to 2.15%, the marginal lending rate to 2.40%. Its staff now project inflation of 2.0% for 2025 and 1.6% for 2026. Christine Lagarde said at the press conference that the bank was getting to the end of a monetary policy cycle.

Now the other series. According to the ECB's own bank interest rate statistics, new housing loans in Germany with a rate fixed for more than five and up to ten years cost 3.32% on average in December 2024 and 3.48% in April 2025, the latest month published. Over those months the deposit rate fell from 3.00% to 2.25%. The policy rate went down by three quarters of a point and the mortgage rate went up.

Why do mortgage rates follow Bund yields and not the ECB?

A bank that lends at a rate fixed for ten years funds that loan with ten-year money, typically through Pfandbriefe, and hedges it with ten-year swaps. Both are priced relative to the ten-year Bund. The Bund yield, in turn, is the market's expectation of short rates over the whole ten years, plus compensation for inflation risk and for the amount of debt the state intends to sell.

That last part moved this year. The ten-year Bund yielded 2.18% on average in December 2024 and 2.56% in May 2025. Most of the rise happened in a few days in early March, when CDU/CSU and SPD announced a EUR 500 billion infrastructure fund and a looser debt brake for defence: the yield jumped by more than 0.3 percentage points to over 2.8%, and the mortgage broker Interhyp reported ten-year loans at 3.4% with a majority of its bank panel expecting higher rates in the second half.

The ECB's cuts, by contrast, were announced well in advance and had been in the price for months. A cut lowers ten-year rates only if it surprises. The one on 5 June did not. What reacts to the deposit rate is everything short: overnight deposits, variable loans, money market funds. Your follow-on financing is not among them.

What the gap means for a loan from 2016

In June 2016 the same statistic showed 1.60%. Say you borrowed EUR 300,000 then at 1.6% with 2% initial repayment. The instalment is EUR 900 a month, and after ten years about EUR 235,000 is still owed.

In the last month of the old loan, EUR 313 of the instalment is interest. At 3.5% on the same balance, interest is EUR 685. If you keep paying EUR 900, repayment drops to EUR 215 a month, an initial rate of 1.1%, and the loan would run for another 41 years. To repay at 2% again you need EUR 1,077 a month. At 4.5% the EUR 900 barely covers the interest.

For a rental property the question is whether the rent carries the new debt service. For many loans from 2016 it will, because rents have risen and a fifth of the debt is gone. But the number has to be computed per property, and now, not when the bank's renewal offer arrives.

What can an owner do now?

A forward loan, if the end date is close enough

A forward loan (Forward-Darlehen) fixes today the rate of a loan that will be paid out later. Lenders offer lead times of up to five and a half years and charge roughly 0.01 to 0.03 percentage points per month of lead time; some waive the surcharge for the first six to twelve months. For a fixed period ending in December 2026, eighteen months away, that is 0.18 to 0.54 points on top of today's rate.

It is insurance, and it binds both sides. If rates are lower in 2026 you must still take the loan or pay the bank compensation for non-acceptance. Our view: inside twelve months the forward costs little and removes the one risk you cannot influence. At twenty-four months and more the premium approaches what a normal year of rate movement would cost you anyway, and the decision depends on whether a rate of 4.5% would break the property's cash flow. If it would, pay the premium. If it would merely annoy you, wait.

Special repayments: not automatically

The standard advice is to use every special repayment right (Sondertilgung) before the fixed period ends. For a loan at 1.6% that is often wrong. Paying it down early saves 1.6% a year. On a rental property the interest is deductible, so at a marginal tax rate of 42% the debt costs you about 0.9% after tax. An overnight account paying 2%, say, leaves about 1.5% after the flat tax and solidarity surcharge. The cash is worth more in the account, and it stays available.

What matters is that the money exists on the day the fixed rate ends. On that day the remaining balance can be repaid in any amount without penalty. EUR 30,000 set aside until then brings the example to EUR 205,000 owed, and the instalment at 3.5% and 2% repayment to EUR 939. For an owner-occupied home, where interest is not deductible, the two routes are close and the simpler one wins.

The next fixed period, and § 489 BGB

Under § 489 (1) no. 2 of the German Civil Code a borrower can terminate any fixed-rate loan ten years after full receipt, with six months' notice, and paragraph 4 says this right cannot be excluded by contract. A fifteen-year fixed rate is therefore a cap for fifteen years and an exit after ten and a half. In April 2025, loans fixed for more than ten years cost 3.65% on average against 3.48% for five to ten years. We would pay those 0.17 points on a property we intend to keep: the borrower gets an option the bank cannot take back. With a forward loan the ten years start at payout, not at signature.

Ask a second bank

Your current lender's renewal offer is a price, not a verdict. Switching lenders means assigning the land charge (Grundschuld) to the new bank, which costs fees but far less than a quarter of a point over ten years on EUR 235,000.

None of this is tax or financing advice for your case; your adviser and your loan contract decide the details. The preparation fits on one sheet: for each loan, the date the fixed rate ends, the balance on that date from the repayment schedule, the unused special repayment rights, and the instalment at 3.5% and at 4.5%.