Your fixed-rate period ends: the refinancing sums for a rental flat

When the fixed-rate period on a rental property ends, four numbers decide what to do: the remaining balance, the debt service at the new rate, the loan-to-value today, and the return on the equity that stays tied up if you carry on. For a loan taken out in 2016 at under 2 per cent, the new rate roughly doubles the interest bill. The monthly instalment can still look unchanged, and that is the trap: the same payment now repays less than half as much.

We wrote in June about the ECB's rate cut and why mortgage rates did not follow, and about timing a forward loan. This article is about the property's own sums.

The starting position, with invented numbers

Say you bought a flat in a large German city in February 2016 for EUR 400,000 and financed EUR 320,000 at a fixed 1.9 per cent for ten years. The instalment is EUR 1,040 a month, which was 2 per cent initial repayment. The fixed-rate period ends on 28 February 2026.

After 120 instalments the remaining balance is about EUR 249,600. You have repaid EUR 70,400 and paid EUR 54,400 in interest. In the last year of the old loan the interest is roughly EUR 4,800 and repayment EUR 7,700.

The flat brings EUR 1,250 a month in rent before service charges, EUR 15,000 a year. Costs you cannot pass on to the tenant, plus a maintenance reserve, come to EUR 2,700. That leaves EUR 12,300 before debt service.

What does the debt service cost at the new rate?

The mortgage broker Interhyp put the average for ten-year loans at around 3.6 per cent in its rate update of 6 November 2025; 60 per cent of the experts on its bank panel expect a move towards 4 per cent in 2026. Your own offer will differ; 3.6 per cent is a working assumption.

At 3.6 per cent, EUR 249,600 costs just under EUR 9,000 in interest in the first year. That is about EUR 4,200 more than you pay now.

There are two ways to absorb it, and banks will happily offer the first.

With the instalment held at EUR 1,040, nothing changes in your bank account. What changes is that repayment in the first year drops from EUR 7,700 to EUR 3,500, and after twenty years of ownership you still owe more than half the purchase price. If the rate is 4 per cent by the time you sign, the same instalment repays only 1 per cent.

Debt service against rent tells you what the flat can carry on its own. EUR 12,300 of net rent covers EUR 12,480 of debt service at the old instalment almost exactly. At EUR 1,165 a month the debt service is EUR 13,980, and you add about EUR 1,700 a year from other income, before tax.

The tax side softens the interest, not the repayment

Interest on a loan for a rented property is a deductible expense against the rental income; repayment is not. The extra EUR 4,200 of interest reduces your taxable rental income by the same amount. At a marginal rate of 42 per cent the after-tax cost of the higher rate is closer to EUR 2,400 a year. The same logic lowers the value of an extra repayment: paying down a 3.6 per cent loan on a let property saves 3.6 per cent before tax and about 2.1 per cent after it. This is the mechanism, not tax advice; your adviser knows your rate and whether the property sits in private or business assets.

Loan-to-value after ten years

Loan-to-value is the balance divided by the property's value. At purchase it was 80 per cent. If the flat would sell for EUR 460,000 today, it is 54 per cent.

That matters for the price of the new loan. Lenders price in bands, and 60 per cent is the threshold that counts, because under section 14 of the Pfandbrief Act a mortgage can serve as cover for Pfandbriefe only up to 60 per cent of the mortgage lending value. One caution: the mortgage lending value (Beleihungswert) is the bank's own conservative figure and is below the market price. A loan at 54 per cent of market value may sit at 62 per cent of the lending value. Ask the bank which value and which band it has used; a few thousand euros of extra repayment on the rollover date can move the loan into the cheaper band.

The options

You are free on the rollover date. Section 489 (1) no. 1 of the German Civil Code lets a borrower terminate with one month's notice to the end of the fixed-rate period, and no early repayment charge is due then. Whatever you repay on that day costs nothing extra.

Prolongation. Your bank sends an offer, usually a few months before the end. It needs no new land-register entry and no paperwork, and for that reason it is seldom the bank's best rate. Use it as the baseline.

Switching lender. The new bank takes over the land charge (Grundschuld) by assignment. The cost is some hundreds of euros in notary and land-register fees, depending on the amount. On EUR 249,600, a rate 0.2 points lower is worth about EUR 500 a year, so a switch pays for itself in the first year.

Paying down on the rollover date. If you hold liquidity that earns less than about 2 per cent after tax, a lump sum reduces risk and may improve the band. If that liquidity is reserved for capital calls or the next roof, leave it where it is.

A shorter or longer fixed period. Five years is usually cheaper than ten, fifteen dearer. The honest question is whether you intend to hold the flat for fifteen years. After ten years from full disbursement, section 489 (1) no. 2 lets you terminate any fixed-rate loan with six months' notice, so a fifteen-year fix is an option you can leave, at a price.

When selling is the honest answer

Look at what your equity earns if you keep the flat. At a value of EUR 460,000 and a balance of EUR 249,600 you have EUR 210,400 of equity in it. Net rent of EUR 12,300 less EUR 9,000 of interest leaves EUR 3,300, or 1.6 per cent on that equity before tax and before any change in value. Under the old loan the same sum came to 3.6 per cent.

A return of 1.6 per cent is not a reason to sell on its own. Rents can rise within the legal limits, the loan shrinks, and the flat may appreciate. But the figure should be on the table next to the alternatives, and three conditions together make selling the better answer: the rent cannot carry the debt service at a repayment rate that ever ends the loan, you would have to feed the property from income you need elsewhere, and you do not expect rent or value to close the gap.

The calendar adds one more point. For a privately held property, a gain on sale is taxable under section 23 of the Income Tax Act only if no more than ten years lie between purchase and sale, counted from contract to contract. A ten-year fixed-rate period and the ten-year tax period often end within weeks of each other. In the example, a sale contract signed after February 2026 falls outside the period, and the rollover date is the one day on which the loan can be repaid without a charge. Anyone who is going to sell in the next two or three years should decide before signing a new ten-year fix, not after.

So before the bank's offer arrives, put the four numbers on one page: balance, debt service at two rates and two repayment levels, loan-to-value on the bank's value, and return on equity. Then compare at least two offers against the prolongation.