How Special Repayments Help You Pay Off Your Loan Faster
Still Some Room to Maneuver?
Being able to pay off your loan early through special repayments sounds smart—and honestly pretty simple. But making an extra payment “just like that” isn’t usually possible. Banks won’t play along unless it’s contractually agreed. And when it comes to subsidized KfW financing programs, special repayments can sometimes be tricky, too. Here’s why that is—and how you can still keep the door open for special repayments.
You can also send us an email if you have questions about extra payments. Our finance experts know all the ins and outs of property financing and explain what you can — and can't — do with extra payments.
- The Basics
- How It Works
- Possible Amount
- Extra payments on KfW loans
- FAQ
Special Repayments for Your Loan
Let’s start at the beginning: a special repayment is an additional payment you make toward your loan. That means, beyond your regular monthly installment—your ongoing repayment—you have the option to send the bank a larger lump sum. But this must be arranged in advance. Every extra payment you make during the fixed-interest period reduces the interest income the bank had counted on when they issued your loan offer.
But no worries—this isn’t some exotic feature. Special repayment options are very common. Most banks don’t charge an interest premium for them, as long as you don’t want to repay more than 5% of the original loan amount per year. For a €100,000 loan, that would mean €5,000 annually. For banks, that’s a manageable and predictable risk.
By the way: If you plan to repay more than 5% per year, some banks will allow it—sometimes even 10%, 50%, or 100% outside the normal schedule. But they’ll typically raise your interest rate in exchange. This is where a repayment calculator comes in handy: it lets you see your monthly payment and how special repayments change the overall cost.
How Special Repayments Become Feasible
Naturally, making extra repayments requires having money left over. With only a small amount of savings, this can be tough. But maybe you’re expecting a salary increase or annual bonus? Maybe you regularly receive a tax refund? Or perhaps an inheritance is likely sometime in the next decade?
These are exactly the types of funds you can put toward special repayments. Leaving that money in a savings account usually doesn’t earn you much—interest rates are just too low. The one advantage is liquidity: you’d have immediate access to cash if you needed it.
Financially speaking, though, putting excess funds into special repayments is usually smarter. As mentioned above, it reduces your interest costs and lowers your remaining debt by the end of your fixed-interest period. That’s especially important for your follow-up financing. The lower the amount you need to refinance later, the better the conditions you’ll qualify for.
When, How Much, and How Often Can You Make Special Repayments?
This is defined in your loan agreement. Some lenders let you make special repayments daily or weekly—an option that’s useful if you haven’t agreed on a flexible repayment-rate clause and your monthly installment is paid by standing order.
More commonly, you can make one special repayment per year. Some banks even specify a date. As long as you have the money by then, you should definitely take advantage of it. And you don’t have to pay the full agreed-upon amount—paying less is totally fine. It only becomes complicated if you want to pay more than the agreed limit.
If you notice that you can’t spare any extra money in a given year, that’s no problem either. There’s no obligation to make special repayments. But if your bank charges an interest premium for offering the option, you’ll still have to pay that—whether or not you actually use the feature.
Tip
If the special repayment option comes with an interest premium, think carefully about whether you’ll realistically make extra payments every year. Otherwise, the added interest may cost more than the option is worth.
Extra payments on KfW loans
In cases where it's possible and makes sense, your property financing can take the form of an annuity mortgage combined with a subsidy program run by the KfW promotional bank. KfW subsidy programs allow you to obtain favorable loan conditions on a portion of the
property's purchase price, and they also help you save on interest. But just like any other bank loan, KfW loans have to be paid back in monthly installments.
Some KfW programs offer the option to make prepayments, allowing you to make extra payments towards a portion — or even all — of the loan principal before the lock-in period ends. This option is offered with the following programs:
Energy-Efficient Construction
Residential Property Modernization
Age-Appropriate Conversion
Whether on a standard loan or a KfW loan, extra payments are doable if you want to have your financing finished and out of the way as quickly as possible. You can find plenty of questions, answers, and discussions about this topic in the Urbyo Community. Stop by and have a look!