IRA: how to calculate early repayment fees when you decide to buy or rent

Early repayment fees (IRA): a crucial parameter in the real cost of a mortgage

Early repayment fees (in French, IRA – indemnités de remboursement anticipé) are often ignored in basic “buy or rent” comparisons, yet they can easily reach several thousand euros. To make a data-driven buy or rent decision, you need to include these penalties in the full cost of your mortgage and compare that to the returns you might earn if you stayed a renter and invested your savings.

Under French law, the lender may charge at most 6 months of interest on the amount repaid early, and never more than 3% of that amount. This is exactly what the penalite_remboursement parameter in our simulator is designed to model.

What are IRA and when do they apply?

IRA are fees charged by the bank when you repay your mortgage before the end of the term, in full or in part. They typically arise in three situations:

• Selling the property before the loan ends (change of city, separation, new buy or rent strategy, etc.).
• Refinancing with another bank to get a lower rate (for example, moving from 3.6% to 2.5% if rates fall).
• Partial early repayment using a cash windfall (inheritance, bonus, accumulated savings).

In some specific cases (certain job loss or death situations, or forced relocation), the law allows early repayment without fees. However, for prudent modelling in a buy or rent simulation, it is safer to assume that IRA will apply unless your loan offer explicitly states otherwise.

How are early repayment fees calculated in France?

The calculation is always done in two steps.

1. Six months of interest on the amount repaid early

The base is the amount you repay early (total or partial). The formula is:

6‑month interest = Early repayment amount × Loan rate × (6 / 12)

With a typical loan rate of around 3.6% today, you get:

6‑month interest = Early repayment amount × 0.036 × 0.5 = Early repayment amount × 0.018

2. Comparison with the 3% legal cap

The bank must then compare:

• Amount A = 6 months of interest (from the formula above)
• Amount B = 3% of the early repayment amount

The fee you actually pay is the lower of these two:

IRA = min(6‑month interest, 3% of the amount repaid)

This is the logic that the penalite_remboursement input reproduces in the buy-or-rent.net simulator.

Numeric example: full early repayment after 8 years

Assume the following:

• Purchase price: €300,000 (existing property)
• Notary fees: 8% or €24,000
• Loan principal: €300,000
• Loan term: 25 years
• Loan rate: 3.6% excluding insurance
• Borrower insurance: 0.30% of initial principal (insurance rate)

After 8 years, you decide to sell and move to another city. You will again face a buy or rent decision in the new location. The remaining principal after 8 years is roughly €240,000 (realistic order of magnitude).

Step 1: 6‑month interest on €240,000

6‑month interest = 240,000 × 3.6% × 6/12 = 240,000 × 0.036 × 0.5 = €4,320

Step 2: 3% cap

3% of 240,000 = €7,200

The fee is the smaller amount:

IRA = min(€4,320, €7,200) = €4,320

In this example, the decision to sell and reset your buy or rent strategy generates an exit cost of €4,320 in early repayment fees, on top of:

• Agency fees for the sale (typically 3–5% of the sale price),
• Property tax paid over 8 years (often €1,000–2,000 per year, with annual revaluation),
• Any renovation work you have done (renovation cost),
• Interest and insurance already paid (insurance often 0.25–0.45%).

If you ignore these €4,320 in your calculations, the comparison against renting will be distorted.

Numeric example: partial early repayment vs investing the cash

Now consider a different choice: you keep living in the property, but you hesitate between:

• Using €50,000 to make a partial early repayment, or
• Keeping €50,000 invested (for example, in an ETF portfolio with a 3–5% expected return).

Assumptions:

• Outstanding principal: €220,000
• Early repayment amount: €50,000
• Loan rate: 3.6%

Step 1: 6‑month interest on €50,000

6‑month interest = 50,000 × 3.6% × 6/12 = 50,000 × 0.036 × 0.5 = €900

Step 2: 3% cap

3% of 50,000 = €1,500

The fee is again the smaller amount:

IRA = min(€900, €1,500) = €900

You pay €900 in early repayment fees to reduce your future interest payments. The rational decision is to compare:

• The interest you will save on the mortgage thanks to this €50,000 prepayment,
• Versus the potential return if the same €50,000 is invested at, say, 4% per year (your investment rate),
• Taking into account annual inflation, which erodes both your debt in real terms and the purchasing power of your investments.

The buy-or-rent.net simulator does exactly this: by using the penalite_remboursement parameter, it quantifies the net impact of prepaying versus investing the funds.

How IRA affect your buy or rent strategy

1. Holding period of the property

The shorter your holding period, the more IRA matter. If you sell after 5–7 years:

• You have already paid notary fees (7–8% on existing property, 2–3% on new builds),
• You have paid a large share of interest early in the amortization schedule,
• You add early repayment fees when you exit.

In that scenario, renting—where your rent increases annually based on an index but you avoid transaction costs—may be more competitive, especially if you invest your savings at a decent investment rate. Whether buying or renting is preferable will depend on your city, local property tax levels, and how quickly that tax is revalued.

2. Flexibility when changing city or home

If you expect to move frequently (career moves, uncertain family plans, etc.), IRA effectively act as a “mobility tax” on every sale. You should compare them against:

• Rental agency fees (often about one month of rent),
• Security deposits,
• The pace of rent increases (linked to an index) versus possible real estate price growth.

In a structured buy or rent analysis, feeding the penalite_remboursement input into the simulator helps you estimate the true cost of each strategy change.

3. Negotiating IRA in your loan contract

IRA are not always fixed. You may be able to negotiate:

• Full removal of early repayment fees,
• A lower, fixed fee instead of the legal maximum,
• Waiver of IRA if you refinance within the same bank.

A slightly higher loan rate with no IRA can be preferable if you are likely to sell or refinance. The simulator allows you to test this by varying penalite_remboursement from the legal cap down to zero and comparing the long‑term impact on your net worth.

Don’t look at IRA in isolation: insurance, tax and renovation matter too

Early repayment fees are just one piece of the ownership cost puzzle. A robust buy or rent comparison must also include:

• Borrower insurance (0.25–0.45% of initial principal): this can add significantly to the effective cost of borrowing, especially in the early years.
• Property tax: from about €450 to more than €5,000 per year depending on the city, with regular property tax revaluation. As a tenant, you do not pay this directly.
• Renovation costs: energy upgrades to improve the energy performance rating, mandatory works, and ongoing maintenance. These outlays affect the real yield of owning versus renting.
• Annual inflation: it reduces the real value of your debt over time, but also erodes the purchasing power of your cash if it is poorly invested. Inflation therefore cuts both ways in a buy or rent analysis.

IRA can tip the scales in borderline cases, especially if you move earlier than planned or refinance when rates drop. But they should always be evaluated together with these other ownership costs.

How to model early repayment fees in a simulator

Step 1: Estimate your likely holding period

Start by asking how long you realistically expect to keep the property: 5, 10, 15, 20 years? The shorter the period, the more likely you will trigger IRA through a sale or refinancing. In the buy-or-rent.net tool, you can set a holding period and simulate a sale at that date, including a full early repayment of the remaining principal.

Step 2: Enter the penalite_remboursement parameter

The penalite_remboursement field lets you:

• Either let the tool automatically apply the legal rule (6 months of interest capped at 3%),
• Or test scenarios with reduced or zero fees if you think you can negotiate them with your lender.

For instance, you can compare:

• Scenario A: IRA at the legal maximum,
• Scenario B: IRA reduced by half,
• Scenario C: no IRA at all.

Step 3: Compare with the rental + investment scenario

On the rental side, the simulator models:

• Your initial rent,
• Annual rent increases linked to an index,
• The monthly cash you may save compared to a mortgage payment,
• The investment rate earned on that saved cash (savings account, bonds, ETFs, etc.).

At the end of the chosen horizon, the tool compares your net wealth in the ownership path (after selling, repaying the loan and paying IRA) with your net wealth in the rental path (financial capital accumulated). It never tells you categorically whether buying or renting is better, but it provides hard numbers to support your decision.

Conclusion: IRA are a hidden cost you must quantify

In a world of mortgage rates around 3.6%, rising property taxes and non‑negligible inflation, ignoring early repayment fees means underestimating the true cost of owning a home. IRA can absorb the equivalent of several months of salary when you sell or refinance.

Whether buying or renting is more advantageous will always depend on your personal situation, your career and family plans, your risk tolerance and your investment options. This article is not personalized financial advice, but a framework to help you understand and quantify early repayment fees within a rigorous buy or rent analysis.

To see exactly how early repayment penalties affect your own project, adjust the penalite_remboursement setting and test multiple scenarios in our simulator: Simulate your situation on buy-or-rent.net.