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Replace construction financing early: without extra costs from the construction loan

What is a prepayment penalty and do I have to pay it?

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

However, you may only fulfill the loan agreement early if you have a legitimate interest. Such is the case if you want to use the property that is used as collateral for the loan for other purposes. Application examples are:

  • You are selling the property.
  • Or you would like to secure an additional loan with the property (e.g. for the attic conversion) and the previous institute refuses to provide the loan for it, while another institute would provide the loan.

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

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

When the bank is not allowed to demand a prepayment penalty

In certain cases the bank may no Request prepayment penalty:

If the interest is fixed for more than 10 years, you as a consumer have after 10 years after the possibility of canceling the loan with a 6-month notice period without compensation. The 10-year period begins on the day on which you received the loan in full (Section 489, Paragraph 1 No. 2 BGB).
If the Bank cancels the loan, for example because the installments can no longer be paid, they are also not allowed to demand a prepayment penalty, but only interest on arrears.

A claim to early repayment penalty is also excluded if the contract contains information about

  • the Duration of the contract
  • the Right of termination of the borrower or
  • the calculation the early repayment penaltyinsufficient are.

However, this only applies to loan agreements concluded on or after March 21, 2016.

This raises the question of when the information is “inadequate”. For this purpose, the BGH ruled on November 5, 2019 (Az. XI ZR 650/18) with regard to a car loan that the credit institute should provide the Calculation of the early repayment penalty Has to name "essential parameters in broad outline".

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

The early repayment penalty is a constant concern of the judiciary, including the Federal Court of Justice. It is particularly about the way in which financial institutions calculate their damage. In general: banks and savings banks have to 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 on the money and capital markets, assumes the Active-active methodthat the bank will grant the capital again as a loan.

Since this is cheaper for providers in the current interest rate environment, they are currently calculating the prepayment penalty exclusively according to the active-passive method. If the current interest rates are below those that the loan would have brought to the bank, the bank suffers interest loss damage.

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

However, these calculation principles do not apply if you do not have a legal right to terminate the mortgage loan prematurely. This is the case, for example, if you become unemployed, a borrower dies or you unexpectedly inherit an amount of money and use it to repay it. Then you are dependent on the approval of your financial institution.

Annoying for customers: So far, the case law allows so-called prepayment or cancellation fees in these cases, which far exceed the real damage to the lender. However, there is a limit to immorality: it lies with the Double the actual damage. It is therefore advisable to submit the calculation of the early repayment penalty to an expert, for example at the consumer advice centers.

Early repayment penalties - what to do about it

The following points help to avoid or reduce a prepayment penalty:

  1. Ordinary right of termination after 10 years
    Have you agreed a fixed interest rate for more than 10 years? Then, after 10 years, you have the option of canceling the loan with a 6-month notice period without compensation. The 10-year period begins on the day the customer received 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 a fixed interest rate of more than 10.5 years, you should therefore check whether the bank has taken into account your ordinary right of termination when calculating the early repayment penalty.
     
  2. Missing information in the contract
    For contracts from March 21, 2016, providers are obliged to provide certain mandatory information in the contract. If the information on 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 right to early repayment penalty is excluded. If you cannot find this information in the contract or if you have doubts that the information provided is sufficient, you should seek independent advice, for example from the consumer advice centers.
     
  3. Check the cancellation policy
    If the revocation instructions for your loan contract do not meet the legal requirements, you can revoke your home loan without a prepayment penalty. You can find more information on revocation and on checking the cancellation policy here.
     
  4. Exchange of 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 level of security as the property sold, the bank must agree to the exchange. The contract can then be continued until the first ordinary termination option or beyond.

Check prepayment penalty: Use our sample letter!

Our Sample letterhelps to ask the bank for a detailed statement of the early repayment penalty.

In addition, the jurisprudence has made some requirements that the banks have to observe in the calculation: For example, the claim ends at the point in time at which the first possible ordinary termination by the borrower would take effect (BGH, judgment of November 7, 2000, XI ZR 27/00. Risk and administrative costs saved are to be taken into account (BGH, judgment of November 30, 2004, Az. XI ZR 285/03) and Special repayment rights to be taken into account when calculating the early repayment penalty (BGH, judgment of January 19, 2016, Az. XI ZR 388/14).

If the reason or amount of the early repayment penalty is disputed, you should "deposit" the requested amount or the transfer fee

"initially subject to the arithmetic verification, the reason and the reclamation"

numbers. This ensures that the institute issues the so-called deletion permit from the land register. You can then have the calculation checked by the bank or savings bank. The consumer advice centers, for example, can help you with this.

How you can prevent a high prepayment penalty

In order to reduce the risk of a high prepayment penalty even before the financing is concluded, you can agree special repayment options with many providers. You have the following options:

  1. Special repayment option
    Agree on the option of special repayments when signing the contract. Because the higher the repayment, the lower the prepayment penalty is usually if you cancel the financing.
    Many credit institutions offer that you can repay your loan once a year up to an additional 5 percent, sometimes even up to 10 percent of the original loan amount. However, this option is rarely offered for pre-financed home loan and savings contracts.
    When calculating the early repayment penalty, the bank must also take into account those special repayments that would have been possible in the future. Even if you do not make use of the contractually granted special repayment right, you will reduce the early repayment penalty.
     
  2. Optional repayment rate change
    Your lender must take contractual repayment rights into account when calculating an early repayment penalty to reduce the damage. When concluding the contract, you should therefore have the right to increase (or decrease) the repayment rate free of charge within a specified range during the ongoing fixed interest period.
    The same applies here: Even if you never make use of this option, the bank must use the highest possible repayment rate when calculating the early repayment penalty.
    Please note: This option is offered less often than the special repayment right or often only at an additional interest rate.

Important!

If you have agreed on special repayment rights or optional repayment rate changes, you should ensure that these are taken into account by the bank when calculating the early repayment penalty. This has often not been the case in the past. In case of doubt, let yourself be advised independently and the calculation of the credit institution checked!

Podcast on the topic of prepayment penalties

If you pay back a real estate loan early, you usually have to pay an early repayment penalty. In this podcast episode, financial expert Niels Nauhauser explains how you can find out whether your bank is making excessive claims and how you can counteract it.

Some banks also offer loans with a termination option that you can repay after 2 or 3 years without a prepayment penalty. However, the providers charge an interest surcharge for this. Whether the higher interest costs are worth it for you depends on how likely you are to terminate the loan with fixed interest rates and how high the early repayment penalty could be in such a case.

We have put together other frequently asked questions in connection with mortgage lending here.

Compare different offers with those of other providers and, if necessary, seek independent advice, for example from your consumer advice center.

This content was created by the joint editorial team in cooperation with the consumer centers North Rhine-Westphalia, Bremen and Baden-Württemberg for the network of consumer centers in Germany.