Glossary · Real estate finance
Early Repayment Charges: Calculation and Avoidance
The early repayment charge is the price for the early exit from the fixed-rate period – predictable and avoidable in many constellations.
Last updated: 18 July 2026 · Reviewed by Jürgen Kronawitter
When does a early repayment charge occur?
Within the fixed interest rate period There is no ordinary right of termination. If the loan is nevertheless repaid – typically when selling the property or an early remortgage – the lender can claim the interest loss (§ 490 Abs. 2, § 502 BGB). No entitlement exists after expiry of the fixed-rate period, in the case of variable-interest loans (there: 3 months notice period) and according to the special termination right of § 489 BGB ten years after full payment.
How is the compensation calculated?
The governing Active-liability method compare the lost interest on the loan with the fictitious reinvestment of the transfer amount in maturity matching mortgage bonds; deduct administrative and risk costs saved, and apply agreed special repayment rights. Rule of thumb: The larger the distance between the contract interest rate and the current Pfandbrief level and the longer the residual bond, the more expensive. In high-interest phases, on the other hand, compensation can tend towards zero – in individual cases, it is worth checking the bank calculation.
Avoid or reduce prepayment costs
- § 489 BGB use: ten years after full payment, compensation is cancellable with six months' notice.
- Change of property instead of replacement: Substituting the collateral: the bank accepts a different property as security while the loan continues.
- Loan assumption by the buyer: negotiable at the sale, if its credit rating carries.
- Structuring strategically: Synchronize holding period and fixed-rate period from the beginning, agree on special repayment rights and partial redemptions – part of every clean Refinancing- and Portfolio structure.
Frequently asked questions
early repayment charge – briefly answered
How high is a early repayment charge typically?
This depends on the remaining term of the fixed-rate period, residual debt and interest rate differential – from close to zero (if market interest rates are above the contract interest rate) up to several percent of the residual debt with long residual tie and sharply falling interest rates.
Can I have the bank’s calculation checked?
Yes, and that is worth it: errors in reinvestment interest, special repayment rights or saved costs are common. Consumer protectors and specialized law firms check calculations; in the case of incorrect cancellation policy, the claim can be completely waived.
Is there always compensation when selling the property?
Only where repayment takes place during the fixed-rate period. Possible alternatives include substituting another property as security, transferring the loan to the buyer, or timing the sale to coincide with the end of the fixed-rate period.
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About the author
Jürgen Kronawitter
Jürgen Kronawitter specialises in structured real estate finance. He helps property investors, developers and portfolio owners implement complex financing solutions. His work focuses on structuring and arranging senior loans, whole loans, mezzanine capital and bridge loans, as well as tailored financing for acquisitions, investment properties, developments and refinancing.