Calculating property financing – working out the instalment and interest burden

Many buyers focus on the interest rate — yet the repayment rate is at least as decisive for the total cost of the financing. The comparison table in the calculator above shows live, for your own loan amount, how 1 %, 2 % and 3 % initial repayment affect the instalment, the term and the total interest burden.

An example with a loan of 240,000 € at 3.5 % interest: at 1 % initial repayment the instalment is 900 € over a term of around 43 years and approximately 225,000 € in total interest; at 2 % it is 1,100 € over around 29 years and approximately 142,000 €; at 3 % it is 1,300 € over around 22 years and approximately 105,000 €. Going from 1 % to 3 % repayment therefore costs around 400 € more a month — but saves around 120,000 € in interest over the entire term. The higher repayment pays off in almost every case, provided your liquidity allows it.

The term of an annuity loan can be calculated precisely — and often comes as a surprise. At just 1 percent initial repayment and 3.5 percent interest, full repayment takes around 43 years. That is not a financing error but mathematics: in the early years the bulk of the instalment goes into interest, and only a small part repays the loan. Only once the remaining debt has fallen noticeably does the repayment share begin to dominate.

Why does it take so long? The term depends on the ratio of interest to repayment: the closer the initial repayment is to the interest rate, the longer the loan runs. At 3.5 percent interest, 1 percent repayment means around 43 years, 2 percent repayment around 29 years and 3 percent repayment only about 22 years. A reliable figure, however, comes only from the exact calculation with the calculator above — simple percentage rules of thumb underestimate the term because they ignore compound interest.

Almost always — when liquidity allows it. Three arguments:

1. Reducing the interest burden: every euro repaid earlier pays no more interest in the future. At 3.5 percent interest, every additionally repaid euro saves around 1 € of interest over 20 years.
2. Reducing interest-rate-change risk: the higher the initial repayment, the less remaining debt is left when the fixed-interest period expires. With sharply risen rates, a high remaining debt can become a burden.
3. The psychological component: anyone with a foreseeable term (e.g. debt-free at retirement) can carry the financing more calmly than someone with an open 40-year term.

For investors there is an additional aspect: a lower repayment preserves more liquidity for further investments. Whether that makes sense depends on whether the expected return on further investments is above the financing interest rate — the marginal view of this is shown by the return-on-equity calculator.