Selling a property with an existing loan: How to avoid high prepayment penalties

Anyone wanting to sell their house or apartment while still paying off their loan faces some unique questions. Selling is generally possible, but banks often demand a prepayment penalty. What options are available for early loan termination, how are potential costs calculated, and under what circumstances can additional fees be avoided?

Speak to the bank before sales begin

Before putting a property with existing financing on the market, it is essential to contact the lending institution as early as possible. This is because the lender typically requires compensation for early repayment, as the originally agreed-upon interest payments will no longer be made over the entire loan term. This so-called prepayment penalty can amount to several thousand euros and should therefore be carefully calculated before the sale. An open discussion with the bank will also clarify whether alternative solutions are possible. Some loan agreements contain special provisions that facilitate early termination or at least make it more affordable.

When a prepayment penalty applies – and when it doesn't

Ten years after the loan has been fully disbursed, borrowers have the right to terminate the contract with six months' notice without having to pay a prepayment penalty. Anyone approaching this deadline should consider whether the sale can be timed to take advantage of this provision.

Certain contractual errors or unclear calculations can also lead to a claim for compensation being unlawful. In such cases, a thorough review of the documents is worthwhile to avoid unnecessary costs.

Alternatives to immediate repayment: Taking over the loan or planning a sale

It's not always necessary to pay off an existing loan in full. In some cases, the buyer can take over the financing. This requires the bank's approval and the new owner passing the credit check. If the loan is transferred, the prepayment penalty may be waived, as the contract continues.

Another option is to choose the timing of the sale strategically. If the fixed interest rate period is about to end or the ten-year term is approaching, it can be financially advantageous to postpone the sale a little longer. With good planning, you can often save several thousand euros.

Especially in complex financing situations, it's helpful not to organize the sale alone. An experienced real estate agent can work with the bank and the seller to find a solution that ensures a smooth sale and avoids unnecessary additional costs.

Do you want to sell your property but still have an outstanding loan? We'll help you coordinate with your bank and plan the sale to avoid unnecessary costs. Contact us – together we'll find the best time and the right solution.

Notes:

For the sake of readability, this text uses the generic masculine form. Female and other gender identities are explicitly included where relevant to the statement.

Legal notice: This article does not constitute tax or legal advice for any specific case. Please consult a lawyer and/or tax advisor to clarify the facts of your individual situation.

Photo: © Wordliner/Image created with OpenAI's Sora

STR_VER_6