Anyone who sells their property while the loan for it is still running repays the loan early—and generally has to pay the bank an early repayment penalty. This compensation reimburses the bank for the interest it loses as a result of the early repayment. We explain why the bank is allowed to demand this payment, how it is calculated, and how you can reduce or avoid the early repayment penalty entirely in 2026.
What Is the Early Repayment Penalty?
The early repayment penalty is financial compensation that your bank may demand if you repay a loan with a contractually fixed interest rate before the end of the fixed-rate period. The background: When the contract was concluded, the bank relied on collecting your interest throughout the entire fixed-rate period. If you repay earlier, it has to reinvest the funds that have become available—usually on less favorable terms. It has this so-called interest loss reimbursed through the early repayment penalty.
Important for classification: The early repayment penalty relates exclusively to your own loan. It has nothing to do with the deletion of the land charge from the land register—separate notary and land register costs apply for this. Anyone selling with ongoing financing should budget for both items separately.
Why Is the Bank Allowed to Demand an Early Repayment Penalty?
The legal basis is the extraordinary right of termination under Section 490 (2) of the German Civil Code. As a borrower, you may terminate a loan secured by a land charge with a fixed borrowing rate early if you have a legitimate interest. The sale of the financed property—described in the law as the “alternative realization of the mortgaged property”—is expressly considered such a reason.
This right of termination is subject to two conditions: At least six months must have passed since the loan was fully disbursed, and you must observe a notice period of one month. In return, the law expressly stipulates: “The borrower must compensate the lender for the damage incurred by the lender as a result of the early termination (early repayment penalty).” The bank therefore cannot prevent you from selling—but it may claim compensation for its interest loss.
How Is the Prepayment penalty calculated?
The amount of the compensation is not set by law as a fixed percentage, but is based on the bank’s actual loss. In practice, most institutions calculate according to the asset-liability method, which has been recognized by the Federal Court of Justice. Put simply, the bank compares the interest you would still have paid with the return it can achieve through a secure reinvestment in mortgage Pfandbriefe. The difference over the remaining term is the interest loss.
The following factors in particular affect the amount:
- Remaining debt: the higher the outstanding amount, the greater the potential loss.
- Remaining fixed-interest period: the longer the bank would still have been bound, the higher the compensation.
- Contractual interest rate compared with the current market rate: If the current interest rate is below your contractual rate, the loss is large. If it is higher, the compensation decreases – in extreme cases to zero.
- Rights to make special repayments: agreed but unused special repayments must be taken into account by the bank to reduce the loss.
- Saved risk and administrative costs: Expenses that are eliminated through early repayment must be deducted.
Banks frequently take the last two points into account too narrowly. Consumer advocates have been pointing out for years that a significant proportion of the calculations are too high. An examination may therefore be worthwhile.
How high is the prepayment penalty in 2026?
There is no flat-rate figure – the range extends from zero to several tens of thousands of euros. As a rough guide, a figure of around 10 percent of the remaining debt was considered typical during years of low interest rates. However, the situation has changed since the significant rise in interest rates from 2022 onward: Anyone who needs to repay an older loan with a very low interest rate often pays noticeably less today – and in some circumstances even nothing at all.
The reason is the interest comparison described above: If the bank can reinvest your money today at similar or higher interest rates than you pay contractually, it incurs no loss or only a minor one. For sellers with old conditions, the interest-rate environment in 2026 is therefore generally more favorable than it was a few years ago. Do not rely on this – ask your bank for a specific calculation.
Reduce or avoid the prepayment penalty
The compensation is not an immutable fate. Several ways can significantly reduce the payment reduce or avoid entirely.
Use the ten-year right of termination
The most effective means is set out in § 489 para. 1 no. 2 BGB: Ten years after the loan has been received in full, you may terminate it with six months’ notice – without any early repayment penalty. This applies even if you have agreed on a fixed interest period of 15, 20 or 25 years. If your sale is scheduled close to this ten-year limit, waiting a few months can be financially worthwhile.
Take the loan with you or transfer it
If you purchase a new property at the same time, many banks offer a security swap (also known as a property or collateral swap): The existing loan continues under unchanged terms and is transferred to the new property. There is no early repayment, so no early repayment penalty arises either. Alternatively, the buyer of your property may assume the loan (debt assumption), provided the bank and buyer agree.
Make full use of special repayments
If your contract includes annual rights to make special repayments that you have not yet used, these reduce the remaining debt – and consequently the basis for calculating the compensation. Before selling, check whether and in what amount special repayments are possible.
Check mandatory information and the calculation
For real estate consumer loans, the entitlement to an early repayment penalty is forfeited entirely if the contract contains insufficient information on the term, the right of termination or the calculation of the compensation. This is governed by § 502 para. 2 BGB. Particularly in contracts from recent years, incorrect information is not uncommon. An incorrect cancellation policy may also, under certain circumstances, give you the right to exit without compensation. A review under consumer or legal law provides clarity.
Does the one-percent limit also apply to property loans?
For general consumer loans – such as installment loans – § 502 para. 3 BGB limits the early repayment penalty to a maximum of 1 percent of the amount repaid, or 0.5 percent if the remaining term is less than one year. However, this cap expressly does not apply to real estate consumer loans. For your mortgage financing, the bank may therefore charge the actual interest loss – which, depending on the interest-rate level, may be higher, but also may be less than 1 percent.
FAQ on Early Repayment Compensation
Can the bank prevent me from selling my property?
No. If you have a legitimate interest, such as selling the property, you have an extraordinary right of termination under Section 490 (2) of the German Civil Code (BGB). The bank must allow early repayment, but may demand compensation for its loss of interest in the form of early repayment compensation.
Does the compensation also apply to a variable interest rate?
No. As a rule, you can terminate loans with a variable interest rate with three months’ notice without paying early repayment compensation. The compensation only applies to loans with a fixed borrowing rate. Building society loans can also generally be repaid at any time without compensation.
How much advance notice should I give my bank?
Inform your bank at an early stage, ideally when planning the sale. This allows you to request a non-binding calculation, schedule the repayment properly, and account correctly for the payment in the purchase agreement and when the purchase price falls due. Deadlines that are too tight can easily lead to delays in the notary appointment.
Is it worthwhile having the calculation checked?
Often, yes. Since banks do not always fully credit saved costs and rights to make special repayments, a significant portion of the calculations is too high. Having it checked by a consumer advice center or a specialized lawyer costs little and can save several thousand euros.
Is early repayment compensation tax-deductible?
As a rule, not for an owner-occupied property. However, if you sell a rented property, the early repayment compensation may be claimed as income-related expenses under certain conditions. Clarify this with your tax advisor, as it depends on the circumstances of the individual case.
Conclusion: Calculate early, then sell
Early repayment compensation is the price of repaying an ongoing loan early—but it can be calculated and is often negotiable. The decisive factors are the remaining debt, remaining term, and, above all, the current interest rate level. Anyone who is close to the ten-year mark, can transfer the loan, or has a faulty contract may not have to pay anything at all. Therefore, request a written calculation at an early stage, review it critically, and include the compensation in your sale calculation from the outset. This way, you can sell with ongoing financing without unpleasant surprises.