Vorfälligkeitsrecht

Vorfälligkeitsrecht refers to the legal right of a borrower to repay a loan before its agreed-upon maturity date. This concept is primarily relevant in German loan and mortgage law. When a borrower wishes to pay off their debt earlier than stipulated in the loan agreement, they may incur a prepayment penalty, also known as a Vorfälligkeitsentschädigung. This penalty compensates the lender for the interest income they would have received had the loan run its full term.

The circumstances under which a borrower can exercise Vorfälligkeitsrecht without incurring a penalty are often legally defined. For instance, if the property securing a mortgage is sold due to the borrower's death or a divorce, or if the borrower's financial situation significantly changes, German law may grant the right to early repayment without penalty. Lenders are generally entitled to demand compensation if early repayment causes them demonstrable financial harm. The calculation of this compensation is subject to specific legal provisions to ensure it is fair and proportionate. Borrowers are advised to carefully review their loan agreements and consult legal or financial experts to understand their rights and obligations regarding early repayment.