Sondertilgung: Should You Pay Off Your German Mortgage Early?

Note: This content is specific to the German banking market.

In Germany, standard mortgage contracts usually include a Sondertilgung (Special Repayment) clause. This typically allows you to pay off 5% of the initial loan amount every year without paying the dreaded Vorfälligkeitsentschädigung (Prepayment Penalty).

If you borrowed €400,000, you can pay an extra €20,000 each year for free. But should you?

The Math: Interest Rate vs. Investment Return

The decision is purely mathematical. Compare your mortgage interest rate with the return you can get on a safe investment (like a Tagesgeldkonto or fixed-term deposit).

Scenario A: Old Mortgage (Low Rate)

• Mortgage Rate: 1.5% (locked in 2020).
• Savings Rate: 3.5% (available in 2025).
• Verdict: DO NOT PAY. If you put €20,000 into a savings account, you earn €700. If you put it into the mortgage, you save only €300 in interest. You lose money by amortizing.

Scenario B: New Mortgage (High Rate)

• Mortgage Rate: 4.0% (locked in 2024).
• Savings Rate: 3.0%.
• Verdict: PAY. Repaying the loan gives you a guaranteed, tax-free return of 4.0%. This beats most safe investments.

The "Use It or Lose It" Rule

Crucial detail: The Sondertilgung allowance is usually not cumulative. If you don't pay the €20,000 in 2025, you cannot pay €40,000 in 2026. The allowance resets every year.

Conclusion

Check your mortgage contract for the Sondertilgung rate. If your loan interest is higher than what you can get in a savings account, use the allowance to the max. It builds equity and reduces your risk for the future refinancing round.

👉 German Sondertilgung Calculator