Glossary

Use our Glossary to understand the different German mortgage terms and definitions

Vorfälligkeitsentschädigung

Prepayment Penalty

If you wish to repay your loan before the end of the fixed-interest period, this is usually not possible as this is only permitted contractually for a serious reason. This reason is usually the sale of the property or the death of the borrower. In such cases, a prepayment penalty will still be charged because the contract (fixed interest) has been broken by the borrower. In this case, the bank calculates the loss incurred by the borrower. There is a legally prescribed calculation method for this. This method takes the following parameters into account: Loan amount at the time of repayment, time until the end of the fixed interest period, reinvestment interest for this amount and this time in German Federal Treasury bonds. The difference to the interest rate agreed in the loan agreement is the bank’s loss, which must be compensated.