Sondertilgung (Repayment) vs ETF Investing

In Germany, Sondertilgung allows tax-free repayment (usually 5% p.a.) of your mortgage without penalty. The big question: Repay debt or invest?

The Math

Let's compare the "Guaranteed Return" of repayment vs likelihood of market returns.

• Mortgage Rate: 4.0%
• ETF Return: ~7.0%

Scenario A: Repayment

Repaying €10k saves you €400/year in interest guaranteed.

• Benefit: This is a risk-free 4% net return (saving interest is tax-free).

Scenario B: ETF

Investing €10k might yield €700/year.

• Tax: You must pay capital gains tax (Abgeltungssteuer ~26.375%).
• Net Return: You end up with ~5.15%.

Verdict

Technically ETF wins (5.15% vs 4.0%), but Repayment is risk-free. If mortgage rates exceed 4-5%, repayment becomes mathematically superior due to tax effects.

Rule of Thumb

1. Loan Rate < 2%: Invest in ETFs.
2. Loan Rate > 4%: Prioritize Repayment.