Short answer
Extra repayment immediately reduces the interest base. Whether allowed or charged is contractual; record an early-repayment charge as a separate cash flow rather than hiding it in the rate.
Important variables
- Effective rate and fees
- Same comparison horizon
- Tax, cost and risk
- Remaining debt or ending wealth
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Worked example
A €5,000 overpayment initially saves about €200 annual interest at 4%. A €300 charge delays the net benefit.
Break-even: What changes the result?
Test the main driver as a cautious, central and optimistic range. Also check whether the ranking reverses at a crossover or remains robust across the range.
Common mistakes
- Equating low payment with low cost
- Equating certain interest saving with uncertain return
- Mixing nominal and real values
Terms in this guide
Sources & assumptions
- European Central Bank — Monetary policy decisions, 23 July 2026 (2026-08-17)
- RATIOXA — Methodology and formulas (2026-08-17)
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