October 20, 2026, 2:17 pm | Read time: 5 minutes
In Germany, according to the Deutschlandatlas, about 43.7% of people own their homes. While this places the country last within the EU, interest in buying or building a house remains strong. Those who decide to own property usually need to take out a loan. But do homeowners have to start repaying the loan immediately after the funds are disbursed? myHOMEBOOK spoke with experts about this.
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The Loan Process
When taking out a loan, it’s usually done through a mortgage lender or directly with a bank advisor. Initially, they assess whether and how much equity is available. This equity is typically used for construction and purchase-related costs. The advisor also determines the maximum monthly loan payment, generally between 30% and 40% of household income. Together with the mortgage lender, they find the best financing offer and bank. The key financing data is then sent to the bank. Documents on income, assets, and the relevant property must also be submitted.
The bank carefully reviews the documents and assesses whether the borrower can afford the loan and its repayment. If so, a loan offer is made. This includes reviewing interest rates, repayment, as well as the term and other loan conditions, including repayment. A repayment-free period can also be established.
The bank then disburses the loan at the agreed time, and it is repaid in monthly installments.
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How Does Loan Repayment Work?
After the mortgage is disbursed, borrowers start repaying it in monthly installments. Each installment consists of interest and principal: the interest compensates the bank for the borrowed money, while the principal gradually reduces the outstanding loan amount. With each payment, the remaining debt decreases, and over time, a larger portion of the fixed installment goes toward the principal. At the end of the agreed interest period, a remaining debt often remains, which borrowers usually cover with follow-up financing. Those who do not wish to start repaying immediately after the loan is disbursed can also agree on a repayment-free period with the bank.
When Must a Loan Be Repaid?
Borrowers typically begin repayment as soon as the bank has fully disbursed the loan. For purchasing an existing property, the disbursement usually occurs in one sum. Shortly after the purchase, often about a month after full disbursement, the bank collects the first loan installment. In contrast, those financing new construction usually draw the loan in stages for each construction phase. Once the bank has disbursed the entire loan amount, regular repayment begins in monthly installments. To ease the financial burden on builders, many banks offer a repayment-free period.
What Is a Repayment-Free Period?
A repayment-free period means that borrowers initially do not repay any of the actual loan amount. While this provides short-term financial flexibility, it also delays debt reduction. This period ends later as a result. Especially with today’s often high monthly installments, even a year without repayment can significantly impact later repayment. On the other hand, during this phase, builders need to provide less money and can use the relief to build reserves for the time after the house is completed.
Borrowers can agree on a repayment-free period with the bank. During this period, which usually lasts one to five years depending on the loan term, they do not have to repay the actual loan amount. However, they do pay interest on the disbursed loan amount. This is different from the interest-free period. It begins with the conclusion of the loan agreement and describes the period during which the bank has already reserved the money for the loan but does not charge interest on amounts not yet drawn.
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Are There Also Breaks in Loan Repayment?
Not only before the actual loan repayment is it necessary for builders to be mindful of financial constraints. Especially during all the years the loan must be repaid, owners should anticipate potential financial difficulties. Two options provide some financial relief during this time.
Dr. Burkhard Touché, a funding advisor from the network of the Association of Private Builders, explains: “Payment breaks are generally possible in difficult situations but require individual arrangements with the bank. A residual debt insurance is also possible but usually relatively expensive. A term life or disability insurance is often cheaper.”
Which Insurances Are Important for Homeownership?
Those looking to acquire homeownership should ensure adequate insurance coverage. Some insurances can help, but which should owners secure in advance? myHOMEBOOK spoke with Kerstin Riege-Krause from a Berlin mortgage company: “For homeownership financing, banks require building insurance as security. Important is also death coverage–it takes over loan repayment if a borrower dies. Home contents and builder’s liability insurance are also recommended. Whether a professional or unemployment insurance or other policies are sensible should be individually assessed–ideally during an insurance consultation.”