Finance
Prepayment Penalty Calculator (Vorfälligkeitsentschädigung)
Estimate the prepayment penalty for paying off your German property loan early — using the simplified asset-liability method.
- Last updated:
- Editorially reviewed
Inputs
Results
- Estimated prepayment penalty
- €9.292
- Interest rate difference
- 1.00%
- Annual interest loss
- €2.000
- Share of remaining debt
- 4.65%
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If you repay a property loan before the fixed-interest period ends, for instance because of a sale, you generally have to compensate the bank for the loss caused by the early repayment: the prepayment penalty (Vorfälligkeitsentschädigung, §490(2) and §502 BGB). Depending on the rate difference and remaining term, it can amount to several percent of the remaining debt. Our calculator estimates the order of magnitude using the simplified asset-liability method, so you can plan the cost of an early exit.
How to use this calculator
You need four values from your loan contract and the current market environment:
- Step 1: Enter your loan's current remaining debt.
- Step 2: Enter your loan's contract interest rate.
- Step 3: Enter the remaining fixed-interest period in years.
- Step 4: Enter the reinvestment rate. This is the rate at which the bank could currently reinvest the repaid money safely on the money and capital market. It follows the current market rate level.
Understanding the results
The penalty compensates the bank for the difference between contract rate and reinvestment rate:
- Interest rate difference: contract rate minus reinvestment rate. If the reinvestment rate is above the contract rate, there is no loss and the penalty is zero.
- Annual interest loss: the rate difference applied to the remaining debt.
- Estimated prepayment penalty: the interest loss summed and discounted over the remaining term.
- Share of remaining debt: the penalty as a percentage of the remaining debt, handy for comparing scenarios.
Why the actual penalty may differ
Our calculator deliberately estimates conservatively: it applies the rate difference to the full remaining debt over the entire remaining term. In their exact calculation, banks must account for the contractually agreed amortization and any granted extra repayment rights as loss-reducing, and must deduct saved administration and risk costs. The actual claim is therefore usually lower than our estimate. Important for sellers: in certain cases no penalty is due at all, for example when terminating under §489 BGB ten years after the loan was received in full, after a valid withdrawal based on faulty withdrawal instructions, or when the contract's information on the term, the termination right or the penalty calculation is inadequate (§502(2) BGB). When in doubt, have the bank's statement reviewed by a consumer advice center (Verbraucherzentrale) or a specialized lawyer.
Frequently Asked Questions
How do banks calculate the prepayment penalty?
Currently mostly via the asset-liability method: the bank compares the lost loan interest with the return of a safe reinvestment on the money and capital market over the remaining term. The difference is discounted and reduced by saved administration and risk costs. Contractual amortization and extra repayment rights must be factored in as loss-reducing.
How high is the prepayment penalty typically?
There is no fixed typical value; the amount depends on the rate difference, remaining debt and remaining term. Example using the calculator's method: €200,000 remaining debt, 3.5% contract rate, 2.5% reinvestment rate and 5 years remaining give €2,000 interest loss per year and about €9,290 after discounting, roughly 4.6% of the remaining debt. If the reinvestment rate is at or above the contract rate, the penalty is zero.
When do I not have to pay a prepayment penalty?
Among others: when terminating under §489 BGB ten years after receiving the loan in full with six months' notice, for variable-rate loans (terminable at any time with three months' notice, §489(2) BGB), after the fixed-interest period has expired, and when the contract's information on the term, termination right or penalty calculation is inadequate (§502(2) BGB).
Is the prepayment penalty tax-deductible?
For rented properties only to a limited extent: if the loan is paid off because of the sale, the penalty is not deductible as income-related expenses against rental income, according to the Federal Fiscal Court case law documented in the official income tax handbook. In a taxable private sale under §23 EStG it counts as a cost of sale.
These calculations are for informational purposes only. Consult a professional for financial advice.