Early repayment penalty and the 10-year right in Germany

Three different doors

People often mix up three separate routes out of a loan. They have different conditions.

Section 500(2) BGB starts from the principle that a consumer can repay a loan “at any time” in whole or in part. For a real-estate loan with a fixed rate, however, repayment inside the fixing period is allowed only if the borrower has a berechtigtes Interesse (legitimate interest). If that condition is met, the separate termination right of section 490(2) does not apply, and the claim for compensation is governed by section 502.

Section 490(2) names one typical legitimate interest: the borrower needs to put the mortgaged property to another use (anderweitige Verwertung); a sale is the usual example. It also requires that six months have passed since the loan was fully paid out and that the notice periods of section 488(3) are respected (three months). The borrower must compensate the lender’s loss.

What the lender may claim

Section 502(1) BGB: on early repayment the lender can demand an adequate compensation for the loss directly connected with the early repayment, if at the time of repayment you owe interest at a fixed rate. The statute gives no formula and no percentage for a real-estate loan. The caps in section 502(3), namely 1% of the amount repaid early (0.5% if no more than a year remains) and the interest you would have paid until the agreed date, are written for general consumer loans only. So a real-estate lender is not limited by those caps.

Section 502(2) BGB excludes the claim in two cases:

1. The repayment is made from an insurance that the loan contract itself obliged you to take out to secure repayment.
2. The contract’s information on the term, on the borrower’s termination right or on how the compensation is calculated is insufficient.

The second case is why a contract should be read closely before a sale. The statute does not say how much information is “sufficient”; that is a question for a lawyer reading your actual contract and the lender’s calculation.

What the ten-year right changes

Under section 489(1) no. 2 BGB, a borrower with a fixed rate can terminate in every case after ten years from the full receipt of the loan, on six months’ notice. The right cannot be excluded or made harder by contract (section 489(4)). Section 489 does not mention a compensation claim. A new agreement on the repayment time or the rate moves the starting date to the date of that agreement.

The guide on fixed-rate periods sets out the other termination dates. One point of caution: a termination under section 489(3) is treated as not made if you do not repay within two weeks after it takes effect, so have the funds ready before giving notice.

Subsidised loans have their own terms

The KfW states, for its programmes 124 (home-ownership programme) and 300 (families), that the entire outstanding amount may be repaid early at any time, that a compensation (Vorfälligkeitsentschädigung) is then due, and that partial repayments and special repayments are not possible. See the guide on KfW home-ownership loans. For other loans, section 500(2) BGB speaks of repaying “in whole or in part”, subject to the fixing-period condition above.

If you are selling the property

A sale is the usual example of a legitimate interest under section 490(2). The lender’s release and the registry deletion are described in the guide on the land charge, and the cost of a sale in the guide on selling a home in Germany. Whether a buyer can take over the loan with the property is a matter for the contract and the lender; the provisions read for this guide do not regulate it.

Which professional to consult

A lawyer specialising in banking or real-estate law can read the contract and the calculation; Payotte does not list lawyers. A mortgage broker can compare refinancing offers (see the mortgage-broker page), and the notary handles the land-charge deletion (see the notary page).