Unscheduled repayment: why it does not usually cost anything when refinancing a German property loan
Most banks grant the right to make unscheduled repayments without charging any additional interest: it costs nothing and can be of great benefit if the need arises. If you do not agree to this, you will not be able to renegotiate it later. If you agree to it and never make use of it, you have nothing to lose.
Extra loan repayments: What are the benefits, and how much do they cost?
An unscheduled repayment reduces the outstanding balance by means of an additional payment outside the agreed instalment schedule and, with most banks, incurs no charge. Provided you stay within the agreed terms, you pay nothing in early repayment charges. It shortens the term of the loan, whilst the instalment amount itself usually remains unchanged. Make sure you agree this right when you take out the loan; it cannot be renegotiated later.
Loan repayments: what is an unscheduled repayment?
An unscheduled repayment is an additional payment towards the outstanding balance, made outside the agreed monthly instalment. It shortens the term of the loan and reduces the interest costs, whilst the instalment itself remains unchanged.
- Does the option to make unscheduled repayments incur an interest surcharge? Not at most banks. A standard annual limit is granted at no extra cost. Only in the case of extended limits or particularly tightly priced offers do some banks charge a small fee — in which case it’s worth comparing offers.
- Can I renegotiate the one-off repayment at a later date? Generally speaking, no. The bank is not obliged to agree to a subsequent change and usually does not. That is why this option should be included in the contract, even if you do not yet know whether you will need it.
- Will making an extra repayment reduce my monthly instalment? Not usually — it shortens the term of the loan and reduces the outstanding balance, thereby also reducing the refinancing risk. Provided you stay within the agreed limits, you will not be charged an early repayment fee.
- Why is the option to make an unscheduled repayment almost always worthwhile? An unscheduled repayment on a loan reduces the outstanding balance by means of an additional payment on top of the agreed instalment, and most banks do not charge a fee for this.
The key detail: a contractually agreed special repayment facility allows this payment to be made without a prepayment penalty — and is granted by most banks without an interest surcharge.
This makes it one of the few options in the loan agreement (Darlehensvertrag) that costs nothing yet is still effective: every additional repayment reduces the outstanding balance, thereby lowering the interest burden and, above all, the risk of having to renegotiate the rate at the end of the fixed-rate period.
If you do not agree to it, you cannot renegotiate it later. If you agree to it but never use it, you have nothing to lose.
It is particularly valuable for non-residents with fluctuating or foreign-currency income, as it allows them to put good years towards repaying the loan without increasing their current instalments.
The amount of the special repayment limit should therefore be negotiated during the loan negotiations themselves, rather than afterwards.
The key distinction lies in the difference between this and early repayment. Anyone who repays a loan in full or to a significant extent during the fixed-interest period usually owes the bank a prepayment penalty. A contractually agreed special repayment limit is precisely the exception to this rule: within this limit, you can make repayments without incurring a prepayment penalty.
The definition of the term itself can be found in the Wiki entry on ‘extraordinary repayments’; here, we’re looking at when this option is worthwhile for you.
Without this clause in the contract, there is no entitlement to it. And it cannot be renegotiated later — the bank is under no obligation to agree, and as a rule, it does not.
Does the right to make unscheduled repayments cost extra?
The most common misconception is that the right to make unscheduled repayments comes at an additional cost. With most banks, this is not the case — a standard annual limit is granted at no extra charge.
This makes it one of the few options in a loan agreement where there is no need to weigh up the pros and cons. If you make use of it, you’ll save on interest. If you never make use of it, you won’t have paid anything. There is hardly any reason not to agree to it.
Only in the case of particularly tight interest rate offers or extended limits do some banks apply a small surcharge. In such cases, it is worth comparing offers — the surcharge must be proportionate to the realistically expected additional repayment.
Extra repayments on a loan: where do they make the biggest difference?
The main benefit of making an unscheduled repayment lies not in the interest, but in mitigating the refinancing risk. At the end of the fixed-rate period, the remaining debt is refinanced on the terms applicable at that time. The smaller this remaining debt, the less you will be affected by unfavourable interest rates.
A second, often overlooked effect: a reduced outstanding debt improves the loan-to-value ratio. This can lead to a better interest rate band for the follow-up financing — so you’re not only paying interest on a smaller amount of debt, but you may also be paying a lower rate.
You can work out in advance exactly how much a planned one-off payment will affect the loan term and the outstanding balance — the Excel repayment schedule shows one-off repayments year by year and remains as a file that you can keep for further calculations.
This option is particularly valuable for tax non-residents. Anyone earning in a foreign currency experiences years when the exchange rate is favourable and years when it is unfavourable. A right to make unscheduled repayments allows you to capitalise on a good year by making extra repayments, without committing to a permanently higher instalment that would put a strain on your finances in a bad year. The same applies to bonus payments, variable remuneration and self-employment.
Loan calculator for extra repayments: what does it show?
A loan calculator that takes into account unscheduled repayments answers exactly two questions: by how much will the term be shortened, and by how much will the outstanding balance be reduced at the end of the fixed-interest period? Taken together, these two figures are the reason for including this option in the contract in the first place — particularly the second one, as the remaining balance is the amount you will later have to refinance at an unknown interest rate.
However, a loan calculator that takes early repayments into account is no substitute for checking the terms of the contract. The calculator assumes that you are permitted to make repayments; whether you are permitted to do so, the amount involved and the due date are set out exclusively in the contract. Use the repayment calculator to work out both options and obtain written confirmation of the terms before signing.
Extra repayments on a mortgage: When can a mortgage be repaid early using extra repayments? Within the agreed special repayment limit, you can repay the loan early without incurring a prepayment penalty; any amount exceeding this limit will usually incur a charge during the fixed-interest period.
Loan repayment: How can you pay it off more quickly?
With the option to make a one-off repayment: this reduces the outstanding balance and, with most banks, does not incur any additional interest charges. It cannot be renegotiated at a later date.
Extraordinary repayments on a mortgage: When must they be agreed? At the time the mortgage is taken out. If you do not agree to the right to make extraordinary repayments, you cannot renegotiate it later; if you agree to it but never make use of it, you have nothing to lose.
Loan repayment: How does an unscheduled repayment affect the term of the loan? The term is shortened and interest costs fall, whilst the monthly instalment usually remains the same. Each unscheduled repayment also reduces the outstanding balance and, consequently, the risk of having to take out a follow-up loan at the end of the fixed-rate period. The extent to which the term and outstanding balance are affected can be calculated in advance.
Extra repayments on a mortgage: What are the rules regarding the annual limit? Most banks allow a standard annual limit at no extra cost. Only in the case of extended limits or particularly tightly calculated offers do some banks charge a surcharge; in such cases, it is worth comparing offers. Within the agreed limit, you pay no prepayment penalty. You should negotiate the amount of this limit during the loan negotiations.
Loan calculator for unscheduled repayments: How much shorter will the loan term be? You can work this out in advance: the repayment schedule in Excel shows unscheduled repayments year by year and remains as a file for you to continue your calculations. How much shorter the repayment term becomes depends on the planned one-off payment.
Extra repayment calculator for your loan: How much will the outstanding balance be reduced? Every extra repayment reduces the outstanding balance; the repayment schedule in Excel shows by how much. The lower the outstanding balance at the end of the fixed-rate period, the less you will be affected by unfavourable interest rates. It also improves the loan-to-value ratio, which can lead to a better interest rate tier for the follow-up financing.
Foreign-currency income: Why flexibility is particularly important here.
Frequently asked questions
Loan repayments: Does the instalment remain the same after a one-off repayment?
Usually, yes. An unscheduled repayment shortens the term of the loan and reduces the outstanding balance; the monthly instalment remains the same.
Repaying a loan early with a special repayment: How much does it cost?
Early repayment is not the same as an unscheduled repayment. Anyone who repays the loan in full or to a significant extent during the fixed-rate period will usually owe the bank a prepayment penalty. You will only be exempt from this penalty if you make repayments within the contractually agreed special repayment limit.
What happens if I don’t use the annual limit in a given year?
Nothing, and it usually lapses. An unused allowance is generally not carried over to the following year. It hasn’t cost you anything, though.
Will making an extra repayment reduce my monthly instalment?
Not usually — it shortens the term. Some banks offer an alternative option of adjusting the instalments. What makes sense in your case depends on whether you prioritise liquidity or being debt-free.
I earn my income in a foreign currency — why is this particularly relevant to me?
Because it allows you to capitalise on favourable exchange rates when making repayments, without being tied to a higher instalment amount in the long term. It is precisely this flexibility that is lacking if the right to make unscheduled repayments is not included in the contract.
Extraordinary repayment on the sale of a property: What are the costs of early repayment?
Even in the event of a sale, the bank is generally entitled to charge a prepayment penalty if the repayment exceeds the agreed special repayment limit. If a sale is on the cards, the limit should be set high enough in advance. For cases involving temporary financing, there are solutions offering up to 100 % special repayment without notice periods (amounts up to €4 million, terms of up to 4 years), which we discuss on a case-by-case basis. Find out more: Bridging finance for sales or inheritance.
Lump-sum payment from an inheritance or sale: Is the special repayment limit sufficient?
Only if the agreed limit is as high as the payment. Anything above that usually incurs a penalty during the fixed-rate period. If you wish to buy out a co-heir, you can find out how under Taking sole ownership of a property.
Discuss the drafting of the contract
We check which banks offer which special repayment limits without charging a surcharge — this is rarely mentioned in their terms and conditions.
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Editorially responsible: Olga Nikushkina — owner, §34i GewO (German mortgage brokerage), adviser register D-W-132-ZUCB-95. Specialised in German property financing with an international dimension: non-residents, foreign-currency income, cross-border workers, expats. Siegfried Perini is entered in the German intermediary register under this licence as a person directly involved in brokerage and advice (§ 11a GewO), active in real estate since 1992. Not legal or tax advice.
