Cancel real estate loan agreement prematurely – do not pay damages to the bank!


You want to sell your property before the financing runs out. If you terminate the loan agreement prematurely, the bank will demand compensation for lost interest. The amount is high, about the same as the amount of interest you would have paid until the end of the loan agreement.


The clause in the loan agreement on compensation for damages in the event of premature termination could be invalid! You will then not have to pay any compensation to the bank. You can sell your property without calculating these additional costs. A German regional court has ruled that a bank’s clause in a loan agreement is invalid.


The bank is not entitled to payment of the so-called early repayment penalty if it does not correctly inform the borrower about the calculation of the amount to be paid already in the loan agreement. The calculation in the contract must be mathematically correct. A ruling by the Darmstadt Regional Court (LG) (Case No. 13 O 6/22) has now examined this in detail. The court declared the clause invalid due to incorrect calculation by the bank in the contract.
The ruling may also be relevant to your case of early termination of real estate financing.


The bank’s calculation of the interest loss must be comprehensible. It may not charge the early repayment penalty if it provides incorrect information in the loan agreement about the basis for calculating the penalty.
The provision in the contract read: the bank’s loss is the difference between the contractual interest rate (i.e., the interest rate on the construction financing) and the yield on mortgage bonds with a term equal to the remaining term of the loan to be redeemed.
But this calculation basis is wrong: Because the remaining term of a loan means the period until the loan is fully repaid. In the present example, the bank states the term in the contract text as more than 33 years. However, this is irrelevant for the calculation of the early repayment penalty.
Rather, the relevant period is the period up to the earliest possible regular termination date of the customer. This is usually the period until the end of the fixed interest rate of the loan, for example, often – ten years after closing.


Many banks use this contractual clause. Therefore, you have a good chance of avoiding damages if you want to sell your property early before the financing expires.
However, do not expect the bank to give up its claim for damages quickly. You will probably have to assert your right vigorously. If necessary, consult an attorney.