Early repayment penalty on a mortgage: calculation, taxes and how to avoid it when selling your house
The early repayment penalty is the item sellers most often forget and most regret. A fixed-rate mortgage is a contract with a fixed term; anyone who terminates it early because they sell, divorce, inherit or simply want to switch to a cheaper bank owes the bank the lost interest up to the end of the term. With a mortgage of CHF 600,000 and four years remaining, that quickly comes to CHF 20,000 to 40,000. This guide explains the calculation step by step, shows why the penalty is higher than many people think when interest rates are low, clarifies the tax treatment under the case law of the Federal Supreme Court and sets out five ways to avoid or reduce the penalty when selling a house. With figures from the Baselbiet and the interest rate environment as of autumn 2026.
In brief
- The early repayment penalty compensates the bank for the difference between the agreed mortgage rate and the rate at which it can reinvest the money for the remaining term, multiplied by the amount and the remaining term, plus a processing fee
- The lower current rates are compared with the rate agreed at signing and the longer the remaining term, the higher the penalty; with money market mortgages (Saron), usually only the notice period matters
- Taxes: when the property is sold, the penalty counts as investment costs and reduces the property gains tax; when the mortgage is replaced at the same bank, it is deductible as debt interest; when switching banks without a sale, neither applies
- Avoiding it: transfer the mortgage to the new property, have the buyer take it over, time the sale for the end of the term, stagger tranches, use notice periods
- Always ask the bank for its statement before the sale: the amount belongs in the sale calculation, otherwise the net proceeds will be wrong
How the bank calculates the early repayment penalty
The penalty is meant to put the bank in the position it would have been in had the contract run until the end. The formula is similar at all banks; the details are in the mortgage terms and conditions.
The three variables: the outstanding amount, the remaining term in years and the interest rate differential. The differential is the agreed mortgage rate minus the rate at which the bank can reinvest the repaid amount for the remaining term, known as the reinvestment rate. Many banks use the rate on Swiss Confederation bonds or the swap rate for the same remaining term, some the rate of a new fixed-rate mortgage with that term. Which rate applies makes a difference of thousands of francs; it is set out in the terms and conditions, which you should read before signing.
Worked example, Liestal: fixed-rate mortgage of CHF 600,000 at 1.80 %, taken out in 2023 for ten years, house sold in spring 2027, remaining term six years. The bank’s reinvestment rate for six years: 0.70 %. Interest rate differential 1.10 % × CHF 600,000 × 6 years = CHF 39,600; discounted to today and with a processing fee of around CHF 500 added, this gives a penalty of roughly CHF 38,000 to 40,000. Had the mortgage been taken out at 1.20 %, the penalty would be around CHF 18,000; with a remaining term of two years, around CHF 13,000.
Negative reinvestment rates: from 2015 to 2022 many banks used negative reinvestment rates, which widened the differential: with a mortgage rate of 1.5 % and a reinvestment rate of minus 0.5 %, the differential was 2.0 %. Since 2024, short-term rates have been close to zero again and slightly positive for longer terms. If rates rise above the rate agreed at signing, the bank would in theory owe a credit; most terms and conditions rule this out.
Saron mortgages: money market mortgages have no fixed interest rate commitment, but a framework agreement with a set term and a notice period of usually three to six months. Anyone who gives notice in line with the notice period usually pays no penalty; anyone who ends the framework agreement early pays, depending on the bank, a small flat-rate fee or the margin for the remaining period. For owners who do not rule out a sale in the next few years, this is an argument for Saron or short fixed terms.
When it applies: sale, divorce, inheritance, switching banks
The penalty is due on every early repayment, whatever the reason. The bank does not recognise hardship cases, and it does not have to.
Sale: the most common case. The mortgage is repaid from the sale proceeds and the penalty is deducted directly. It therefore belongs in the sale calculation, alongside the property gains tax, the property transfer tax, the notary and the estate agent; for an overview, see the guide Notary fees and additional costs when selling a house.
Divorce: if one spouse takes over the house and the mortgage, no penalty is due, provided the bank agrees to the assumption of the debt. If the house is sold, the penalty is due and is usually split in half.
Inheritance: the heirs step into the mortgage. If they sell the house, the estate pays the penalty. If one heir takes over the house, the mortgage continues, provided the bank accepts them as borrower. More in the guide Selling an inherited house.
Switching banks: anyone who switches early to a cheaper bank pays the penalty out of their own pocket, and it usually eats up the interest advantage. Running the numbers is only worthwhile with large differences and a short remaining term. Some banks offer to build the penalty into the new rate; that is the same money in instalments.
Death of the borrower: some banks waive all or part of the penalty on the death of the borrower if the house has to be sold. This is set out in the terms and conditions or is a matter of negotiation; it is worth asking.
Taxes: what the Federal Supreme Court has ruled
Whether the early repayment penalty is tax-deductible depends on why the mortgage is terminated. The Federal Supreme Court clarified this in 2019 in three cases.
Termination because the property is sold: the penalty counts as a cost inseparably linked to the sale and forms part of the investment costs for the property gains tax. It therefore reduces the taxable gain; in the canton of Basel-Landschaft, depending on the holding period and the gain, the saving is up to 25 % of the amount. In this case, a deduction as debt interest for income tax is ruled out. How the property gains tax is calculated in the Baselbiet is explained in the guide Property gains tax Basel-Landschaft.
Termination with a new mortgage at the same bank: the penalty counts as debt interest and is deductible for income tax, because the debt relationship with the bank continues and only the terms change. With a marginal tax rate of 30 %, almost a third comes back this way.
Termination with a switch to another bank: neither. The penalty is not linked to the property, so it is not an investment cost, and the debt relationship ends, so it is not debt interest. It is lost for tax purposes, which makes switching banks even more expensive.
The cantons apply this case law; when you sell, the penalty is listed in the property gains tax return under investment costs, with the bank’s statement as supporting evidence. Anyone who transfers the mortgage to a replacement property has no penalty and therefore no tax question either; more on this shortly.
Five ways to avoid or reduce the penalty
In most sales, the early repayment penalty can be avoided if planning starts early enough. We check these five ways with every seller.
1. Transfer the mortgage to the new property: anyone who sells and buys again takes the existing fixed-rate mortgage with them. Most banks allow this within a period of a few months, provided the new property can carry the loan; if there is a gap between sale and purchase, the mortgage is temporarily secured by a deposit. The terms remain, the penalty falls away. This requires the sale and purchase to be coordinated; the right order is explained in the guide Replacement purchase.
2. The buyer takes over the mortgage: if the mortgage runs on terms that are attractive today, having the buyer take it over can be a selling point. The bank assesses the buyer like a new customer; if it agrees, no penalty is due. With rates above the current level, however, no buyer will want this.
3. Time the sale for the end of the term: if the mortgage expires in one to two years, it often pays to time the sale accordingly or to let the house until then. The penalty for the last few months is small; with remaining terms of less than a year, the bank sometimes waives it entirely.
4. Stagger tranches and terms: anyone who splits the mortgage into two or three tranches with different terms when taking it out, or keeps one tranche as Saron, only pays on the fixed portion when selling. This is a decision to make when taking out the mortgage, not when selling; anyone who thinks a sale in the next ten years is possible does not lock everything in for ten years.
5. Negotiate and compare: the bank’s statement is a calculation, not a law of nature. Which reinvestment rate was used, whether it was discounted, whether the processing fee is reasonable, whether the bank is accommodating if you sell to one of its own customers or take out a follow-on mortgage for the new property: everything is negotiable, especially for long-standing customers. A second calculation by us or an independent financial adviser costs little and often brings in a few thousand francs.
How to proceed when selling a house with a fixed-rate mortgage still running
The penalty helps decide whether and when a sale makes sense. That is why it belongs at the start of the planning, not at the end.
- Read the mortgage contract and terms: term, amount, interest rate, notice period, rule for calculating the penalty, option to transfer.
- Ask the bank for a statement: a non-binding calculation as at the reference date of the planned sale, in writing. It is free and commits you to nothing.
- Work out the options: sale now with the penalty, sale at the end of the term, transfer to a replacement property, takeover by the buyer, letting until expiry. Include taxes: on a sale, the penalty reduces the property gains tax.
- Set it out in the purchase contract: set the payment date so that the repayment coincides with the end of the term or a termination date, if possible; if the buyer takes over the mortgage, include the bank’s consent as a condition.
- Check the statement: compare the bank’s final statement with the non-binding calculation; discrepancies do occur, especially in the reference date and the reinvestment rate.
Practical example: a married couple in Füllinsdorf sells their single-family house in 2027 for CHF 1,150,000 and moves into a condominium for CHF 820,000. Fixed-rate mortgage of CHF 550,000 at 1.65 % until 2031. Repayment option: penalty of around CHF 24,000; as investment costs, it reduces the property gains tax by about CHF 5,000, net cost around CHF 19,000. Transfer option: the bank transfers CHF 500,000 to the flat, the remaining CHF 50,000 is repaid with a penalty of around CHF 2,200. Saving compared with repayment: over CHF 16,000, for one phone call to the bank before signing the purchase contract. How the bank calculates affordability for the new flat is shown in the guide Calculating affordability; the mortgage in a sale as a whole is covered in the guide Mortgage when selling a house.
Questions on this topic.
How is the early repayment penalty calculated?
Outstanding amount times remaining term in years times interest rate differential, where the differential is the agreed mortgage rate minus the bank’s reinvestment rate for the remaining term; a processing fee is added. With CHF 600,000, six years remaining and a 1.1 % differential, that comes to around CHF 39,000 before discounting.
Is the early repayment penalty tax-deductible?
When the property is sold, yes, as investment costs for the property gains tax. With a new mortgage at the same bank, yes, as debt interest for income tax. When switching to another bank without a sale, no. That is what the Federal Supreme Court decided in 2019.
Can I avoid the early repayment penalty when selling my house?
Often, yes: transfer the mortgage to the new property, have the buyer take it over, time the sale for the end of the term or let the house until then. The bank has to agree in each case; ask before signing the purchase contract.
Is there an early repayment penalty on a Saron mortgage?
Usually only a small flat-rate fee or the margin for the rest of the framework term; anyone who observes the notice period of usually three to six months often pays nothing at all. The terms differ from bank to bank.
Can I negotiate the amount of the penalty?
Partly. The calculation follows the terms and conditions, but the reinvestment rate, discounting, processing fee and concessions on follow-up business are negotiable. An independent recalculation is almost always worthwhile for amounts over CHF 10,000.
What happens to the mortgage in a divorce or inheritance?
If a spouse or an heir takes over the house and the bank accepts them as borrower, the mortgage continues without a penalty. If the house is sold, the penalty is due and is paid from the proceeds, usually split in half in a divorce.
Selling with a mortgage still running?
We recalculate the early repayment penalty, check transfer and takeover with your bank and set the sale date so that as little of it as possible remains.
Let’s talk about your property.
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