Early-repayment penalty
A penalty the bank may claim if the borrower clears the loan early, capped by law at six months' interest on the repaid capital and never above 3% of the outstanding balance. Some situations are exempt, and the penalty can be negotiated at signing. It weighs into any buy-back or renegotiation calculation.
Key points
- Legally capped at six months' interest on the early-repaid capital, not exceeding 3% of the outstanding balance.
- Certain legal exemptions exist (sale following job loss, professional relocation, death).
- Negotiable at origination: some banks grant partial or full waivers.
- Factored into the profitability calculation of any refinancing or partial early repayment.
Frequently asked questions
How are early-repayment penalties concretely calculated on a loan?
You apply the lower of two legal ceilings: (1) six months' interest at the contractual rate calculated on the early-repaid amount, and (2) 3% of the outstanding balance before repayment. So on €80,000 repaid at 4% over 6 months, the calculation gives €1,600, compared with 3% × outstanding balance. The lower of the two amounts applies.
In which cases are early-repayment penalties legally waived?
The law provides several automatic waiver situations: sale of the property following involuntary job loss, a professional relocation requiring a change of primary residence, death of one of the borrowers, or forced cessation of self-employed activity. These cases are exhaustively defined and the broker must ensure the client documents them properly to invoke the waiver against the bank.
Is it always better to repay early despite early-repayment penalties?
Not necessarily: if the loan rate is below the safe return achievable on the available sum, keeping the capital invested may be more profitable than clearing the loan and paying penalties. The broker compares the net penalty cost with the interest saved on the outstanding balance for the remaining term, then factors in reinvestment opportunity. The answer often depends on the rate level and remaining term.
In practice
A borrower wants to repay €50,000 early on a 1.80% loan with 8 years remaining. The broker calculates penalties of €450 (6 months' interest), a modest cost against roughly €3,600 in saved interest: the early repayment is well worth it.
Official sources
- Prepaying your mortgage · Service-Public.gouv.fr
- Article R313-25 Consumer Code (early repayment indemnity) · Légifrance
- The annual percentage rate (APRC) · Service-Public.gouv.fr