What is Early Repayment?
Quick Summary
Early repayment (German: Sondertilgung) is an unscheduled payment in addition to your regular loan installment. It allows you to pay off a loan faster, shorten the term and save significant interest. For German mortgages, typically 5-10% of the loan amount per year.
Definition in Detail
Early repayment refers to an additional payment on a loan that goes beyond the agreed regular installments. It serves to pay off the loan early and reduces the remaining debt (principal balance).
For mortgages in Germany, the right to early repayment must be contractually agreed. Common arrangements are:
- 5% per year: Standard at most banks (free)
- 10% per year: Often with a small interest premium
- Unlimited: With some providers, usually with an interest premium
Benefits of Early Repayment
Financial Benefits
- • Significant interest savings
- • Shorter loan term
- • Faster debt freedom
- • Flexibility with lump sum payments
Practical Benefits
- • Use bonuses, inheritances, etc.
- • No fixed payment dates required
- • Improved creditworthiness
- • Lower remaining debt for refinancing
Calculation Example: Savings through Early Repayment
Starting point: Mortgage of EUR 250,000, interest rate 3.5%, repayment 2%, term approx. 30 years
| Scenario | Without Early Repayment | With EUR 5,000/Year |
|---|---|---|
| Term | 30 years | 21 years |
| Total Interest | approx. EUR 165,000 | approx. EUR 95,000 |
| Savings | — | approx. EUR 70,000 |
Result: Annual early repayments of EUR 5,000 save around EUR 70,000 in interest and shorten the term by 9 years.
Tips for Early Repayment
Secure early repayment rights
When signing, agree to at least 5% early repayment per year – even if you don't plan to use it now.
Consider timing
Make early repayments as early in the year as possible to maximize interest savings.
Keep reserves
Only repay surplus capital – keep an emergency reserve of 3-6 monthly salaries.
Check alternatives
With very low interest rates, investing may be more profitable – compare loan interest and expected returns.
Frequently Asked Questions
How much early repayment is typical?
For mortgages in Germany, 5% to 10% of the loan amount per year is typical for early repayment. Some banks offer 15% or unlimited early repayment options, often with a small interest premium of 0.05% to 0.2%.
Is early repayment always worthwhile?
Yes, in most cases. Early repayments reduce the remaining balance and thus the total interest costs. Exception: If alternative investments yield a higher return than the loan interest rate, investing may be more profitable.
What does early repayment cost?
Within the agreed early repayment allowance, there is no cost. For payments beyond this or for loans without early repayment rights, an early repayment penalty may apply.
When is the best time for early repayment?
The earlier the repayment, the greater the savings due to the compound interest effect. Ideally, pay at the beginning of the year, as the remaining balance is reduced for the entire year.
Can I make early repayments on any loan?
Not automatically. For consumer loans, early repayment is legally regulated (with a small fee). For mortgages, the early repayment right must be contractually agreed.
Legal Notice
The right to early repayment for consumer loans is regulated under § 500 of the German Civil Code (BGB). For mortgages with fixed interest periods, contractual agreements apply. Early full repayment may incur a prepayment penalty. Status: February 2026.