Vorfälligkeitsentschädigung
Prepayment Penalty. The compensation a bank charges for repaying a fixed-rate loan early. It can run to five figures: but § 489 BGB grants a free exit 10 years after full disbursement, with 6 months' notice.
The penalty compensates the bank's lost interest margin and shrinks as rates rise (there may be none if market rates exceed your contract rate). Selling within the fixed period usually triggers it; porting the loan to a new property (Objekttausch) can avoid it.
Plan financing around the 10-year exit right: it aligns with the tax-free Spekulationsfrist, making year 10+ the natural window to sell or refinance penalty-free.
Frequently asked questions
What is an early repayment penalty on a German mortgage?
The compensation a bank charges when a fixed-rate loan is repaid before the fixed period ends. It covers the interest margin the bank loses for the remaining fixed term.
How much is the early repayment penalty?
Anywhere from nothing to a five-figure sum. It depends on the outstanding balance, the remaining fixed period and the gap between your contract rate and the current market rate. When market rates have risen it can fall away entirely.
When can a bank not charge an early repayment penalty?
After valid termination under § 489 BGB, which allows exit ten years after full disbursement with six months' notice, on variable-rate loans with three months' notice, and where the bank has miscalculated the loss or the contract's mandatory disclosures were defective.
Is the early repayment penalty tax deductible?
It depends on the reason. On a refinancing where letting continues it counts as a deductible expense. On a sale it is treated as a cost of disposal and only reduces the taxable gain within the ten-year speculation period.