Early repayment penalty (Vorfälligkeitsentschädigung) on sale
Most properties are sold while a loan is still active. If you repay the loan early, the bank usually demands an early repayment penalty (Vorfälligkeitsentschädigung) – compensation for the lost interest. This can amount to several thousand Euros and should be included in every serious sales appraisal. We show you how it arises and how to keep it low.
What the early repayment penalty is
If you repay a loan with a fixed interest rate period before it expires, the bank loses out on the agreed interest for the remaining term. The early repayment penalty is the legally permissible financial compensation for this. It is the price for exiting the contract early so that you can sell the property free of encumbrances.
When it is incurred – and when not
It is incurred if you repay a repayment mortgage with a current fixed interest rate period early. It does not apply if the fixed interest rate period has already expired, if the loan is older than ten years (then there is a statutory right of special termination with six months' notice under § 489 BGB), or if the right of withdrawal notice in your contract was incorrect.
How the bank calculates
The bank determines the interest loss it incurs due to the early repayment and discounts it to its present value. The calculation takes into account the outstanding balance, agreed interest rate, remaining term of the fixed interest rate period, agreed overpayment rights, and the current reinvestment interest rate level. The higher today's market interest rates are compared to your old rate, the lower the penalty will be.
How to reduce the penalty
Check for overpayment rights that reduce the outstanding balance and thus the penalty. Check whether the fixed interest rate period is about to expire or the 10-year limit has been reached – waiting a short while can completely avoid the penalty. Have the bank's calculation checked by a consumer advice centre (Verbraucherzentrale) or a specialist lawyer; calculation errors are common.
Alternative: Port or transfer the loan
Sometimes the loan can be transferred to a new property (collateral exchange (Pfandtausch)) or the buyer takes over the financing. Both avoid the early repayment penalty, but depend on the bank and the specific circumstances. We examine on a case-by-case basis whether this is an option for you.
How we support you
We request an up-to-date outstanding balance certificate and an early repayment penalty calculation from your bank for you, integrate the amount into the sales appraisal, and coordinate the repayment date with the notary appointment so that the property can be transferred free of encumbrances.
Vermeiden
Common mistakes with an active loan
Penalty not factored in
The sales proceeds are allocated without deducting the early repayment penalty – ultimately, less remains than expected.
Special right of termination overlooked
After ten years of the loan term, there is a right to terminate with six months' notice – entirely without penalty. This is often not checked.
Bank calculation accepted without review
Early repayment penalties are often set too high. A review by a consumer advice centre or a specialist lawyer can save a significant amount of money.
Repayment date poorly coordinated
If the repayment does not align with the notary and payment date, double interest or a delayed transfer free of encumbrances are threatened.
Frequently asked questions
Loan still active?
We clarify your outstanding balance and repayment.
We request the figures from your bank and integrate them accurately into your sales appraisal.