French vs. German System: Complete Amortization Guide

When taking out a mortgage, most people focus on the interest rate (NIR/APR) or the term. However, the amortization system is just as important, as it determines how you pay back the money and when you pay the interest.

In this guide, we compare the two most popular methods: the French System and the German System.

1. The French System (The Standard)

The French system is the most widely used in Europe and for most personal loans globally. Its main feature is that the monthly payment is constant (assuming a fixed interest rate).

How does it work?

• Fixed payments: You pay the same amount every month.
• Decreasing interest: At the beginning of the loan term, a large portion of your payment goes towards interest, and very little towards principal.
• Increasing principal: Over time, you pay less interest and amortize more principal.

Pros: Allows for simple financial planning, as you know exactly how much you will pay each month. Cons: If you want to repay early, it is less efficient to do so at the end of the loan, as most of the interest has already been paid.

Calculate your French amortization schedule here

2. The German System (Decreasing Payment)

The German system is less common for personal mortgages but widely used in other types of financing. It is characterized by amortizing a fixed amount of principal each month.

How does it work?

• Constant principal amortization: You always repay the same amount of borrowed money each month.
• Interest on outstanding balance: Since the outstanding principal drops quickly, the interest also drops every month.
• Decreasing payment: The sum of principal + interest makes the first payment the highest and the last the lowest.

Pros: You pay less total interest over the life of the loan compared to the French system. Cons: The initial payments are very high, which makes it harder for many families to qualify or afford the loan initially.

3. Direct Comparison

| Feature | French System | German System | | :--- | :--- | :--- | | Monthly Payment | Constant | Decreasing | | Principal Amortization | Increasing | Constant | | Total Interest Paid | Higher | Lower | | Initial Effort | Lower | Higher |

Conclusion: Which to choose?

For most household budgets, the French system is the safer and more accessible option, as it allows for an affordable payment from day one.

However, if you have savings capacity and want to minimize the total cost of the mortgage, making early repayments on a French system loan can simulate the advantages of the German system, reducing principal and saving interest.

Want to see how your mortgage looks? Use our free simulator to create your own amortization schedule.