What is Repayment Rate?
Quick Summary
The repayment rate is the portion of your monthly loan payment that goes toward paying down the principal. It reduces your remaining balance and determines how quickly you pay off the loan. The higher the repayment rate, the shorter the term and lower the total costs.
Definition in Detail
The repayment rate describes the portion of your loan payment that pays down the borrowed amount. With an annuity loan, your monthly payment consists of two components:
- Interest portion: The cost of borrowing the capital
- Repayment portion: The amount that reduces your debt
With each payment, your remaining balance decreases. This reduces the interest portion while the repayment portion increases with a constant total payment – this is the principle of annuity.
Calculation Example
Assume you take out a loan of EUR 200,000:
| Parameter | 1% Repayment | 3% Repayment |
|---|---|---|
| Loan Amount | EUR 200,000 | EUR 200,000 |
| Interest Rate (fixed) | 3.5% | 3.5% |
| Initial Repayment | 1% | 3% |
| Monthly Payment | EUR 750 | EUR 1,083 |
| Term (approx.) | 47 years | 23 years |
| Total Interest (approx.) | EUR 223,000 | EUR 99,000 |
Result: A higher repayment rate (3% instead of 1%) cuts the term in half and saves over EUR 120,000 in interest – despite higher monthly payments.
Types of Repayment Compared
Annuity Repayment
The total payment stays constant. The repayment portion increases while interest decreases.
- + Predictable, consistent payments
- + Standard for mortgages
- - High interest portion at start
Fixed Repayment
The repayment portion stays constant. The total payment decreases over time.
- + Faster debt reduction
- + Decreasing burden over time
- - Higher initial payments
Tips for Optimal Repayment
- 1At least 2% repayment: For mortgages, the initial repayment should be at least 2%, preferably 3% or more.
- 2Arrange early repayment options: Use the ability to pay an extra 5-10% annually to shorten the term.
- 3Secure repayment flexibility: Choose contracts with rate adjustment options to respond to life changes.
- 4Consider total burden: Monthly payments should be a maximum of 35-40% of net income.
Frequently Asked Questions
What is the difference between repayment rate and interest rate?
The interest rate is the cost of borrowing money (interest charges). The repayment rate is the portion of your payment that reduces your loan balance. Together, they form the annuity (total payment).
What is a good repayment rate?
For mortgages, experts recommend at least 2% initial repayment, preferably 3% or more. The higher the repayment rate, the faster the loan is paid off and the less interest you pay overall.
What does initial repayment mean?
The initial repayment is the repayment rate at the beginning of the loan term. With annuity loans, the repayment portion increases over time as the interest portion decreases while the total payment stays the same.
Can I change the repayment rate during the loan term?
Many loan contracts allow repayment adjustments, often 1-2 times during the fixed interest period. Some banks also offer flexible repayment rates from the start. Terms vary by lender.
How does the repayment rate affect total costs?
A higher repayment rate significantly shortens the term and reduces total interest costs. Example: With EUR 200,000 and 3% interest, increasing repayment from 1% to 3% saves over EUR 100,000 in interest.
Legal Notice
Repayment calculations in Germany follow the German Price Indication Regulation (PAngV). The examples shown are for illustration and may differ from individual loan offers. Status: February 2026.