Repay building financing early: No extra costs from the building loan

The most important thing in brief:

• Anyone who repays their real estate financing early will have to pay more if the interest rates have fallen compared to the agreed loan interest rate.
• However, if the bank has made mistakes in the loan agreement, it may not be allowed to charge a so-called prepayment penalty.
• The early repayment penalty required by providers is not always appropriate, as required by law. Therefore, have the calculation checked independently. For example from some consumer advice centers.

What is an early repayment penalty and do I have to pay it?

If a real estate loan is repaid early, the bank can (according to Section 502 Paragraph 1 BGB) “an appropriate Prepayment penalty “for the damage directly related to the early repayment”. If you do not accept the loan amount from a concluded loan agreement, for example because you are not purchasing the property after all, this is referred to as one Non-acceptance compensation.

However, you may only fulfill the loan agreement early if you have a legitimate interest. This occurs if you want to use the property that serves as security for the loan for another purpose. Application examples are:

• You sell the property.
• Or you would like to secure an additional loan with the property (e.g. for a loft conversion) and the previous institution refuses to provide the loan for this, while another institution would provide the loan.

Your credit institution is legally obliged to tell you the amount of the early repayment penalty. In order to fulfill this obligation, in our opinion you may: neither a fee demands one more Expenses billed become

However, the bank may then demand appropriate compensation from you for the early repayment. In the following cases, however, this claim of the bank is excluded.

When the bank is not allowed to charge a prepayment penalty

In certain cases the bank may no Demand early repayment penalty:

If the interest rate is fixed for more than 10 years, you as a consumer have after 10 years after the option to terminate the loan without compensation with a 6-month notice. The 10-year period begins on the day on which you have received the loan in full (§489, Paragraph 1 No. 2 BGB). Example: A loan agreement with a 15-year fixed interest rate was concluded on June 30, 2022 to finance a property. The loan amount was paid in full on August 15, 2022. The consumer may terminate this loan agreement at the earliest on August 15, 2032 with a notice period of 6 months. In this case there is no early repayment penalty.
If the Bank terminates the loanfor example because the installments can no longer be paid, they may not demand any early repayment compensation, but only interest on arrears.

A claim for early repayment compensation is also excluded if information is provided in the contract

• the Term of the contract,
• the Right of termination of the borrower or
• the calculation the early repayment penalty insufficient are.

However, this only applies to loan agreements concluded from March 21, 2016.

This raises the question of when the information is “insufficient”. In this regard, the Federal Court of Justice decided in its judgment of November 5, 2019 (ref. XI ZR 650/18) with regard to a car loan that the credit institution had Calculation of the early repayment penalty must name “essential parameters in broad strokes”.

However, the information for calculating the early repayment penalty does not only have to be present in the contract. You also have to clear, concise and understandable be. They cannot be inaccurate, but at the same time they must correct and still understandable be. This is how the legislature formulated it (printed matter 16/11643) and this is what it says in the Munich commentary on the BGB. Furthermore, the Frankfurt am Main Higher Regional Court decided in its judgment of July 1, 2020 (Az 17 U 810/19) that if the lender provides information beyond the information owed, this must be clear and understandable.

Prepayment penalties are a constant concern of the judiciary, including the Federal Court of Justice. This is particularly concerned with the way financial institutions calculate their damage. In general, banks and savings banks must ensure transparency; The customer must be able to understand the calculation of the early repayment penalty.

How is the early repayment penalty calculated?

Since March 21, 2016, credit institutions have had to provide information about the calculation of the early repayment penalty in the loan agreement. The Federal Court of Justice (BGH) has recognized the so-called “active-passive method” and the “active-active method” as permissible.

While the Active-passive method assumes that the repaid loan will be safely reinvested in the money and capital markets Active-active methodthat the bank grants the capital as a loan again.

Since this is cheaper for providers in the current interest rate environment, they are currently calculating the early repayment penalty exclusively using the active-passive method. If the current interest rates are below what the bank would have received from the loan, the bank suffers interest loss.

Costs included in the contract for this individual risk and the Administration of the contract must be deducted as these no longer apply after repayment.

However, these calculation principles do not apply if you have no legal right to terminate the building financing early. This is the case, for example, if you become unemployed, a borrower dies or you unexpectedly inherit a sum of money that you could use to repay it. Then you are dependent on the approval of your financial institution.

Annoying for customers: So far, case law has allowed so-called early repayment or cancellation fees in these cases that far exceed the actual damage suffered by the lender. However, there is a limit to immorality: it lies with Double the actual damage. It is therefore advisable to present the calculation of the early repayment penalty to an expert, for example at the consumer advice center.

Prepayment penalty – what you can do about it

The following points help to avoid or reduce early repayment penalties:

1. Ordinary right of termination after 10 years
   Have you agreed on a fixed interest rate beyond 10 years? Then, after 10 years, you have the option of terminating the loan without compensation with a 6-month notice period. The 10-year period begins from the day the customer receives the loan in full. In this case, the bank is not entitled to any compensation.
   When calculating early repayment penalties, the bank must assume that you would make use of your statutory right of termination. If you have agreed on a fixed interest rate of more than 10.5 years, you should therefore check whether the credit institution has taken your normal right of termination into account when calculating the early repayment penalty.
2. Missing information in the contract
   For contracts from March 21, 2016, providers are required to provide certain mandatory information in the contract. If the information about the term of the contract, the borrower's right of termination or the calculation of the early repayment penalty is insufficient – or not available at all – the claim to early repayment penalty is excluded. If you cannot find this information in the contract or have doubts as to whether the information provided is sufficient, you should seek independent advice, for example from consumer advice centers.
3. Check the cancellation policy
   If the cancellation instructions for your loan agreement do not meet the legal requirements, you can cancel your building loan without any early repayment penalty. You can find more information about revocation and checking the revocation instructions here.
4. Exchange of lien on the property
   If you own another, unencumbered property, you can offer it to the bank as replacement security. If it grants the bank at least the same security as the property sold, the bank must agree to the exchange. The contract can then be continued until the first regular termination opportunity or beyond.