The mortgage from start to finish: payment, interest and early repayment

What is the French amortisation system?

The vast majority of mortgages in Spain use the French system: the monthly payment is constant throughout the life of the loan. What changes month to month is the proportion that goes to capital and interest. At the start, almost everything is interest; at the end, almost everything is capital repayment.

The monthly payment formula

The formula is: C = P × [r(1+r)ⁿ] / [(1+r)ⁿ−1], where P is the loan amount, r is the monthly rate (annual rate / 12) and n is the number of payments. For example, for €200,000 over 25 years at 3.5% nominal rate: r ≈ 0.00292; n = 300; C ≈ €1,001/month.

How much do you really pay in interest?

Total paid over 25 years would be 1,001 × 300 = €300,300 — that is €100,300 more than the loan amount. Reducing the term or rate by even half a point has a huge impact on this figure.

Fixed, variable or mixed?

A fixed-rate mortgage keeps the same rate throughout, giving stability but often starting higher. A variable rate is reviewed every 6 or 12 months based on Euribor, creating uncertainty. A mixed mortgage combines an initial fixed period (typically 5–10 years) with a subsequent variable tranche.

When does early repayment make sense?

The earlier in the loan life an early partial repayment is made, the greater the interest saving, because the outstanding balance is higher. Shortening the term saves more interest than reducing the payment, though the latter gives more monthly liquidity. Always check whether your mortgage has an early repayment fee.

Nominal rate, APR and total cost: don't confuse them

The nominal rate (TIN) is the interest used to calculate the payment, as in the example above. The APR (TAE) adds the effect of compounding and the loan's mandatory fees, which is why it is the figure the rules require to compare mortgages on a like-for-like basis. The total cost also includes linked products (home or life insurance), the appraisal and notary and registry fees. A payment simulation starts from the nominal rate; for the real cost of the mortgage you need to look at the APR and the FEIN document the bank provides. Official information is available from the Bank of Spain.

Repaying early: how much you save

Repaying a mortgage early is one of those decisions that look obviously good and are not always so. Putting capital in ahead of schedule does save interest, but the money you commit stops being available for anything else, and that is the part rarely calculated. Before deciding there are three questions to answer: how much you save, how much it costs you to do it, and what you give up doing with that money.

Shorter term vs. lower payment

When you make an early repayment, the bank lets you choose: reduce the monthly payment while keeping the term, or keep the payment and shorten the term. Shortening the term saves more total interest, because the outstanding balance falls faster. Reducing the payment gives more immediate monthly cash flow but saves less interest overall.

The choice is not purely mathematical. Shortening the term maximises the saving but leaves you with the same payment and less slack; reducing the payment eases the monthly budget, which can be decisive if your income is irregular or you expect it to fall. If your situation is stable, shortening the term almost always wins; if it is not, buying monthly breathing room has a value that never shows up on the spreadsheet.

A numerical example

A €200,000 mortgage over 30 years at 3%. Early repayment of €20,000 in year 5 with ~€176,000 outstanding: if you choose to shorten the term, the remaining term drops from 25 to ~19 years, saving ~€25,000 in interest. If you choose to reduce the payment, the monthly payment falls by ~€100 but you only save ~€10,000 in interest.

The gap between €25,000 and €10,000 for the same contribution is why the choice is worth understanding. With the shorter term, those €20,000 «return» 125% over the life of the loan; with the lower payment, half that. Same money, same bank: all that changes is the box you tick on the form.

Why repaying early saves so much more

Under the French amortisation system, standard in Spain, the payment is constant but its composition shifts: at the start it is almost all interest and very little capital. Repaying in year 3 wipes out interest you would have paid for 27 years; repaying the same amount in year 25 only removes the interest of the 5 remaining years. That is why an identical sum can save ten times more depending on when you put it in.

Fees to consider

Spain's 2019 Real Estate Credit Act caps early repayment fees: for variable mortgages, maximum 0.25% in the first 3 years and 0.15% in the next 2 (then 0%). For fixed mortgages, maximum 2% in the first 10 years and 1.5% from year 11. These fees can reduce net savings.

One important nuance: the fee can only be charged where the bank suffers an actual financial loss from the cancellation, and it can never exceed that loss. In practice, on older variable mortgages it often ends up at zero. Before accepting the figure the branch quotes you, check what your deed literally says.

When NOT to repay early

If you have higher-rate debts (credit cards, personal loans), pay those off first. If the expected return on an alternative investment exceeds the after-tax cost of the mortgage, investing may be better. And if you have limited cash, maintaining an emergency fund is the priority.

• •You have more expensive debt: a card at 20% makes repaying a 3% mortgage a poor priority
• •You have no emergency fund: money repaid cannot be recovered if something unexpected happens
• •Your mortgage is old and very cheap: a 1% rate is hard to beat by repaying rather than investing
• •You still hold the main-residence deduction: if you bought before 2013, repaying may carry an extra tax advantage worth calculating first