Land charge interest: why the land register shows 15%

Andriy Bezborodko · 2026-10-14

The notary has sent you the draft deed creating the land charge. You read it carefully, and on page two it says that the land charge bears interest at 15% a year. Your loan costs 3.7%. At this point, most people wonder whether they have misread it or whether the bank is up to something.

Neither is the case. The interest specified in the land charge is a security buffer for the bank, not a payment obligation. You pay the interest under your loan agreement, and nothing else. The figure only becomes important if something goes wrong or you later refinance.

We explain what land charge interest is, why it is set so high, and calculate in euros what the figure means if things go wrong.

01What land charge interest is

A land charge (Grundschuld) is a security right over your property (§ 1191 BGB). The bank has it registered before paying out the loan. The land register then records three things: an amount, usually equal to the loan, an interest rate and often a one-off ancillary amount of a few per cent.

The interest rate specified in the land charge is known as interest in rem. This means that it is attached to the property, not to your loan agreement. It has nothing to do with the borrowing rate you pay each month. The land charge is an abstract right. It exists independently of how much you currently owe the bank.

What the bank may actually claim under the land charge is governed by a second agreement, the security agreement or declaration of security purpose. This specifies which loans the land charge secures. The bank may not retain more than the secured claims. Since 2008, this protection has also applied when the land charge is sold to a third party (§ 1192 Abs. 1a BGB).

02Why the interest rates are so high

Banks do not set land charge interest so high simply out of habit. There are three concrete reasons.

The third reason is often underestimated. Anyone who registered a land charge at 15% in 2016 was doing so at a time when mortgage rates were 1 to 2%. Today, interest rates are at a different level, yet the cover is still adequate. Without it, additional registrations might have been necessary when refinancing.

03Worked example: security cover in euros

Petra and Jens are financing a let flat with a €280,000 loan. The land charge is for €280,000, with annual interest of 15% and a one-off ancillary amount of 5%. Their borrowing rate is 3.7%, and the initial repayment rate is 2%. The names are fictional, and the figures are a worked example, not a forecast.

It only becomes significant if things go wrong. Suppose that after six years the couple can no longer pay the instalments and the bank initiates a compulsory auction. Under the land charge, within its priority class, it can claim at most the principal, interest for the current year and two years of arrears, plus the ancillary amount.

The €420,000 cover is an upper limit, not an entitlement. The bank may only retain what Petra and Jens actually owe it. If the auction raises more, the remainder goes to lower-ranking creditors or the owners.

04Costs and tax: what the interest does not change

Many people suspect that high land charge interest makes the notary more expensive. It does not. The notary and land registry calculate their fees based on the nominal amount of the land charge (§ 53 Abs. 1 GNotKG). Whether interest of 12% or 18% is registered makes no difference to the bill.

For a let flat, these costs are financing costs and are deductible as income-related expenses in the year of payment. Land charge interest itself is not, because it is never paid. The interest under the loan agreement is deductible.

05When high land charge interest benefits you

What sounds like a disadvantage can save money later.

Refinancing with the same bank. The land charge remains in place even if the interest rate changes. The high interest rate attached to the property also covers the new rate.

Switching to another bank. Instead of creating a new land charge, the existing one can be assigned to the new bank. This is generally cheaper than deleting it and registering a new one. Sufficient interest headroom makes it easier for the new bank to take it over.

Further loans. Once part of the loan has been repaid, a broadly worded declaration of security purpose can allow the land charge to secure a new loan too, for example for modernisation or as part of the financing for a second flat. A new registration is then unnecessary.

06Risks and limits

Submission to enforcement. Almost every deed creating a land charge includes a declaration that the owner submits to immediate compulsory enforcement, often with a personal acknowledgement of debt as well. The bank then does not need a court judgment. This is standard, but it makes payment arrears a serious matter. Budget for void periods, lost rent, maintenance and a higher interest rate when refinancing, with a reserve to cover them.

Broad declaration of security purpose. If the land charge secures all the bank’s claims, the flat also stands as security for other borrowing, such as a business account. Read this section before the notary appointment and ask questions if it goes further than necessary.

Calling in the land charge. If the bank wants to enforce the land charge, it must call it in with six months’ notice (§ 1193 BGB). This notice period is mandatory for land charges used as security and gives you time to look for a solution.

After the final instalment. The land charge does not disappear automatically. You can have it deleted or leave it in place. If it remains, it can be useful for a later loan. When the property is sold, it is usually deleted.

07Further reading

• Glossary: land charge
• Glossary: deleting a land charge
• Glossary: refinancing
• Glossary: compulsory auction
• Notary costs when buying property
• Deducting loan interest when letting property
• Calculator: property purchase costs

08Sources

All sources accessed on 14 October 2026.

• § 1191 BGB, § 1192 BGB (Abs. 1a), § 1193 BGB
• § 10 ZVG (Abs. 1 Nr. 4, current amounts and two years of arrears)
• § 53 GNotKG (value of the land charge = nominal amount)
• BMZ Recht, ‘From the notary’s office: why land charge interest is so absurdly high’ (2016), bmz-recht.de
• Worked examples: our own calculations, as at 14 October 2026

Note: This guide provides general information and is not a substitute for legal or financing advice tailored to your circumstances. All figures are worked examples with disclosed assumptions, as at 14 October 2026.