Repaying your mortgage early
Repaying early means paying back part of the outstanding capital ahead of schedule, or cancelling the loan in full. By reducing the capital, the interest you pay from then on falls too. The two key questions are: do I cut the payment or cut the term? and what fee can the bank charge me? This guide answers both with the actual Spanish legislation and explains when repaying early beats putting that money elsewhere.
What repaying early means
There are two forms. A partial repayment hands over an amount against the outstanding capital, and the loan continues with less debt. A full repayment (early cancellation) settles all the remaining capital and extinguishes the debt. Watch a common confusion: paying off the debt does not by itself remove the mortgage from the Land Registry. The charge stays registered until you process its registral cancellation, a separate step (a zero-debt certificate from the bank, a notarial cancellation deed and registration at the Land Registry; art. 82 of the Spanish Mortgage Act). In both cases the economic effect is the same: because interest is calculated on the outstanding capital, the sooner you reduce it, the less interest you pay over the rest of the loan's life. That is why repaying in the early years, when the outstanding capital is larger, has more impact than doing so at the end.
Cut the payment or cut the term
When you repay part early, you choose what the bank recalculates. They are two different goals:
| Option | What changes | What it is for |
|---|---|---|
| Cut the term | The monthly payment stays the same; you shorten the number of months left. | Maximises the total interest saved: you finish sooner and pay less overall. |
| Cut the payment | The term stays the same; the amount you pay each month falls. | Eases the monthly budget; the interest saving is smaller than cutting the term. |
For the same capital repaid, cutting the term saves more interest than cutting the payment, because you concentrate the reduction on the periods with more capital outstanding. Cutting the payment makes sense if what you want is monthly breathing room (for tighter income, or to protect yourself from rate rises on a variable mortgage). There is no universal answer: it depends on whether you prioritise paying less in total or easing each month.
The early repayment fees (legal limits)
Article 23 of Spain's Law 5/2019 (LCCI) caps what the bank can charge you for repaying early. Whatever your contract states cannot exceed these legal limits, and for loans signed from 16 June 2019 they are:
| Mortgage type | Maximum compensation (art. 23 LCCI) |
|---|---|
| Variable | The agreed amount, not exceeding 0.25% of the capital repaid during the first 3 years (0% after) or, as an alternative, 0.15% during the first 5 years (0% after). Only one of the two options applies, not both. |
| Fixed | The agreed amount, not exceeding 2% of the capital repaid during the first 10 years and 1.5% thereafter. |
| Switch from variable to fixed or mixed (novation or subrogation; initial fixed period of at least 3 years) | 0.05% of the capital repaid during the first 3 years of the loan's life; 0% after. |
The compensation never exceeds the bank's loss
There is a further limit many people are unaware of: the early repayment compensation cannot exceed the financial loss the bank actually suffers from that repayment (art. 23 LCCI). That loss exists when the money it lent you at one rate can only be re-lent at a lower rate. Therefore, if the bank suffers no loss, there is no compensation to charge, even if the contract states a percentage. The effective amount is the lower of the agreed percentage (within the legal caps) and the actual financial loss.
Is it better to repay or to invest the money?
Repaying early is equivalent to a guaranteed return: each euro you pay back saves you the interest that euro would have generated, with no risk. The honest comparison is between your mortgage rate (what you save) and the realistic net return of the alternative (a deposit, a fund, etc.), after tax and assuming its risk. Factors to weigh:
- Certainty vs risk: the saving from repaying is certain; the return from investing is uncertain.
- Emergency buffer: do not leave yourself without liquidity in order to repay; keep a fund for the unexpected.
- Repayment fee: if your contract charges one, subtract it from the saving when you do the maths.
- Main-home tax relief: this Spanish state relief was abolished in 2013. Only those who acquired the home before 1 January 2013 and were already claiming it can keep it, under the transitional regime (with the AEAT's requirements). If that is your case, repaying early can increase the base eligible for relief within the annual limit; confirm it with the AEAT, because it changes the outcome.
There is no fixed rule: with low mortgage rates, keeping the investment may yield more; with high rates, the certain saving from repaying carries more weight. Run the numbers with your own figures.
How to work it out with the calculator
To see the real effect, simulate your mortgage before and after repaying. In the mortgage calculator enter the outstanding capital, the remaining term and your rate, and note the total interest. Then repeat with the capital already reduced. To simulate cutting the payment, keep the same term and watch the payment fall. To simulate cutting the term it is not enough to pick any shorter term: shorten it until the payment is again roughly the same as what you paid before; that is the term that reproduces the operation. Compare the total interest of each scenario: the difference is your gross saving, and subtract the fee if there is one. On a variable mortgage the result is only indicative, because it depends on hypothetical future rates. And remember that being able to choose between payment and term depends on what your contract provides and on your bank's procedure. If you are also comparing offers or a novation, the figure that matters is the APR: we explain it in the guide on the difference between the nominal rate and the APR.
Simulate your mortgage before and after repaying
Summary
- Repaying reduces the outstanding capital and, with it, future interest; it has the most effect in the early years.
- Cutting the term saves more interest; cutting the payment eases the monthly cost.
- Maximum fee (art. 23 LCCI, from 16/06/2019): variable 0.25%/3 years or 0.15%/5 years; fixed 2%/10 years + 1.5%; conversion to fixed or mixed (≥3 fixed years) 0.05% in the first 3 years of the loan's life.
- Paying off the debt does not cancel the mortgage at the Registry; registral cancellation is a separate step (art. 82 of the Mortgage Act).
- The compensation never exceeds the bank's financial loss; if there is no loss, nothing is charged.
- Repaying is a certain return; compare it with the net return of investing and keep a liquidity buffer.
Official sources
- Law 5/2019 (LCCI) — art. 23 (early repayment and compensation) and transitional provision 1 (BOE, consolidated text).
- Royal Decree-law 8/2023 — amends the conversion-to-fixed-or-mixed-rate provision of art. 23 LCCI (in force on 29 December 2023) (BOE).
- Spanish Mortgage Act, art. 82 — registral cancellation of the mortgage (BOE).
- AEAT — relief for investment in a main home and its transitional regime.
- Bank of Spain — Bank Customer Portal: information on early repayment (guidance, not rules).
Notice: this guide and the calculator are for information and educational purposes. They are not financial, tax or legal advice, nor a loan offer. The amounts, rates and percentages in the examples are hypothetical and illustrative; the actual fees and the tax regime depend on your specific contract, its date and your autonomous region. Always check the repayment clause in your deed with your bank and, for any tax doubt, with an adviser.
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