What I see from Kimmich is that he now has the most ideal option to join Madrid. No matter his free transfer status, but Kimmich has a better future. That's why he is reluctant to extend his contract. In Madrid he can have a bright future and a decent place as a player as long as he can show his quality. At least in Madrid he can be closer to trophies especially the Champions League.
Actually, if Kimmich really wants to join Madrid, it would be a good choice. It's just whether he will be ready to be a second-string player if Ancelotti will prioritize old players. But that also won't be a guarantee if he will be a second-string player as long as he can show his best performance, maybe Ancelotti can set Kimmich as a main player who will help Madrid advance stronger in competing in the UCL and also give him good achievements while with Madrid.