Early mortgage repayment
Repaying early means giving the bank back part (or all) of the outstanding capital of your mortgage ahead of schedule, using extra money (savings, a bonus, an inheritance…). Since interest is calculated on the capital you still owe, paying capital back in one go reduces future interest.
Remember: in the French system (the usual one in Spain), at the start of the loan most of the payment goes to interest. That is why repaying early saves the most: there is more future interest to "cancel".
The two options: payment or term
When you repay early, the bank lets you choose what to reduce. This is the key decision:
- Reduce the payment: you keep paying for the same number of years, but each month you pay less. It gives you monthly relief (more cash now).
- Reduce the term: you keep paying the same payment, but you finish sooner. This is the option that saves the most interest, because you shorten the life of the loan.
Rule of thumb: if your goal is to pay less interest in total, reducing the term usually wins. If you need to breathe each month, reduce the payment.
A numerical example
A €150,000 mortgage at 3 % nominal over 30 years (payment ≈ €632/month). You repay €10,000 in year 5. Approximately:
| Option | Payment after | Remaining term | Interest saved |
|---|---|---|---|
| Reduce payment | ~€588/month | same (25 years) | ~€5,000 |
| Reduce term | ~€632/month | ~3 years less | ~€9,500 |
Same €10,000 contributed, but reducing the term saves almost twice the interest. (Figures are illustrative; use the calculator for your case.)
What if I invest instead of repaying?
Repaying is not always optimal. Compare:
- Your mortgage rate (what you save by repaying, risk-free).
- Expected return from investing that money (with risk and taxes).
If your mortgage is at a low rate and you expect investing to yield more over the long term, mathematically it may pay to invest. But repaying has a huge psychological and safety advantage: it reduces guaranteed debt, risk-free. There is no single answer; it depends on the rate, your profile and your peace of mind.
Details to keep in mind
- Early repayment fee: by law it is capped and is often 0 % on fixed rates after a certain number of years, but check your deed.
- Primary-residence deduction: only for mortgages before 2013, which can still be deducted; that changes the calculation of whether to repay.
The trick that combines the best of both
There's a little-known third path: reduce the payment when you prepay (to lower your mandatory fixed cost and gain headroom) but keep voluntarily paying in the same amount you paid before. That way you get the relief if you hit trouble and, if you don't need it, interest savings close to those of reducing the term. It takes discipline, but it keeps the flexibility in your hands, not the bank's.
Common mistakes
- Prepaying with your buffer at zero. Prepaid money is not easily recovered; before advancing capital, secure your 3-6 months of expenses.
- Comparing the mortgage rate with the gross return of investing. Compare with the return net of tax (19-21 % of the gain) and of risk: prepaying is a safe, tax-free return.
- Not checking the prepayment fee or whether your mortgage predates 2013 (with deduction rights), since both change the calculation.
This is educational information, not financial advice. Check your loan terms and consult a professional if in doubt.