Sondertilgung

What is Sondertilgung (special repayment)?

Sondertilgung (German for "special repayment", essentially an overpayment) is an unscheduled, extra payment on a German mortgage, made separately from your regular monthly Annuität (the fixed instalment). The normal instalment splits into an interest portion and a repayment portion, but a special repayment goes entirely towards the principal. That lowers the outstanding balance at once and reduces the interest you owe in every month that follows.

There is no statutory right to make special repayments. Whether, when and how much you can pay is governed solely by your loan contract. The so-called Sondertilgungsrecht (right to make special repayments) sets out what percentage of the original loan amount you may pay each year on top of the schedule without any extra cost. Securing this right when you sign keeps you flexible for bonuses, an inheritance or other unexpected income.

The best time for a special repayment is as early in the loan term as possible. Interest is always calculated on the remaining balance, so every early repayment works as an interest saving across many years.

Calculating Sondertilgung: a worked example

Take a loan of €300,000 at a fixed borrowing rate (Sollzins) of 3.5% with an initial repayment rate of 2.0% per year (an Annuität of about €1,375 a month). Without any special repayment, the outstanding balance after a 10-year fixed-rate period is around €244,000, and the full term runs to roughly 33 years.

Make a special repayment of €10,000 every year (about 3.3% of the loan amount) and after 10 years the picture looks like this:

Annual special repayments adding up to €100,000 over ten years shorten the term by about 12 years and save roughly €35,000 in interest. The exact effect depends on the interest rate, the repayment rate and the timing of the extra payments.

Key points to know

• Typical limits: Banks usually allow free special repayments of between 5% and 10% of the original net loan amount per year. Ask for this allowance during contract negotiations, since it can nudge the interest rate up slightly but saves far more over the long run.
• Early-repayment penalty (Vorfälligkeitsentschädigung): Go over the limit agreed in your contract, or pay the loan off in full ahead of time, and you owe the bank a Vorfälligkeitsentschädigung. It compensates for the interest income the bank loses and can run to several thousand euros.
• Not tax-deductible: Special repayments lower your interest costs, but they are not themselves deductible, neither for owner-occupiers nor for landlords.
• Timing matters: A special repayment early in the term has a much bigger effect than one near the end, because the interest share of each instalment is highest at the start.

Legal basis

German law contains no statutory right to make special repayments. The option to repay outside the schedule is purely contractual and set down in your individual loan agreement.

One important provision does help, though: § 489 BGB (the German Civil Code). After a fixed-rate period of 10 years, borrowers can terminate and repay the loan in full with 6 months' notice and pay no Vorfälligkeitsentschädigung. If a special repayment exceeds the limit allowed in the contract, § 502 BGB applies to consumer loans: where more than 12 months of the term remain, the early-repayment penalty is capped at 1% of the amount repaid. Separate calculation rules apply to property loans with a long fixed-rate period.