Repayment is built up separately
In real estate finance, a fixed mortgage is a loan that is not repaid directly. Unlike the repayment mortgage, the repayment is built up separately. In the case of a fixed-rate mortgage, also called a repayment suspension loan, no repayment is made directly into the loan over the entire term of an interest period that has been agreed with the financing institution.
The repayment is suspended, for example, by a home savings contract concluded at the same time as the loan loan agreement. The amount of the home savings sum to be concluded must be congruent with the contractually agreed loan amount. However, an existing home savings contract can also be used, but here too, the home savings sum must at least correspond to the amount of the loan.
Fixed-rate mortgage as well as a repayment mortgage
There is also the option of suspending repayment using a life insurance policy. Here, instead of a home savings contract, life insurance will have to be taken out. With both redemption suspension instruments, with life insurance, as well as with the home savings contract, these must be ceded to the lender. This also happens immediately when applying for a loan. It should also be mentioned that, like all other real estate loans, a fixed-rate mortgage must be secured under land register law.
It should therefore be noted that a fixed-rate mortgage as well as a repayment mortgage can only be used to finance real estate.
The decisive disadvantage of a fixed-rate mortgage, however, is definitely the fact that no repayment is made directly into the loan during the entire fixed-interest period of the loan. This eliminates the repayment effect, which arises with the repayment mortgage by the fact that repayment is permanent and the repayment immediately reduces the loan debt. As a result, the interest saved in this way is immediately added back to the repayment and the interest payments decrease continuously and in a progressive manner.