Hipoteca ClaraRepaying a mortgage early in Spain: lower the payment or shorten the term?
If you have savings and a mortgage, repaying part of the loan can save you thousands of euros in interest. Compare the two ways of doing it and the fee you can be charged.
Repaying early means returning to the bank part (partial repayment) or all (full repayment) of the capital sooner than planned. Spain's Law 5/2019 recognises this right at any time before the agreed term ends (article 23.1), although the contract may require prior notice of no more than 1 month.
The two ways to repay
When you make a partial repayment you can usually choose between two options:
- Lower the payment: the term stays the same and the monthly payment goes down.
- Shorten the term: the payment stays the same and you finish paying earlier.
Example: a €10,000 lump sum
A mortgage with €150,000 outstanding, a rate of 3% and 25 years to go has a payment of €711.32. If you repay €10,000:
| Lower the payment | Shorten the term | |
|---|---|---|
| Monthly payment | €663.90 | €711.32 |
| Remaining term | 25 years | 22 years 8 months |
| Change | −€47.42 a month | −2 years 4 months |
| Interest saved | €4,226 | €10,426 |
Shortening the term saves more interest because you stop paying it for longer. Lowering the payment saves less but gives you room every month.
When each one may suit you
- Shorten the term: if your current payment is comfortable and you want to minimise the total cost.
- Lower the payment: if you need to ease your monthly budget or prefer to keep flexibility.
There is no single answer: it depends on your situation. What matters is to compare with real numbers in the early repayment calculator.
The fee for repaying early
Law 5/2019 limits what the bank can charge (article 23). These are maximums: your contract may set a lower fee or none, and the bank cannot charge more than the financial loss it suffers.
| Type of mortgage | Limit on the amount repaid |
|---|---|
| Variable: option A | 0.25% during the first 3 years |
| Variable: option B | 0.15% during the first 5 years |
| Fixed | 2% in the first 10 years and 1.5% afterwards |
On variable mortgages the two options are mutually exclusive: the contract contains one or the other. Outside those cases the bank cannot charge any compensation or fee for repaying early (article 23.4).
How it affects the saving: with the €10,000 of the example, the maximum fee on a fixed mortgage would be €200 and the saving from shortening the term would fall to €10,226. On a variable mortgage capped at 0.25%, the fee would be €25 and the saving €10,401.
Note: these limits apply to loans signed from 16 June 2019. If your mortgage is older, check what your contract says.
How to request it
Tell the bank you want to repay. Within a maximum of 3 business days it must give you the information needed to assess the operation: its consequences and the assumptions it used. If you cancel the debt in full, the accessory insurance that benefits the bank ends unless you say otherwise, and you are entitled to a refund of the unused part of the premium. When you repay, ask in writing for the new amortization schedule.
Common mistakes
- Repaying with all your savings and being left with no cushion for emergencies.
- Not checking the agreed fee before deciding.
- Calculating the saving without deducting the fee.
- Mixing up the outstanding capital with the original loan amount.
Calculate your case with the early repayment calculator. The information in this guide is based on Law 5/2019 and is for guidance only.