When to prepay your mortgage — and when not

Extra mortgage payments are one of the simplest ways to save hundreds of thousands of CZK in interest. But not always, and not always at the maximum rate. Here's the strategy that actually works.

When prepayment is essentially free in Czechia

Czech law allows up to 25 % of the outstanding balance per year to be prepaid without any fee, on the anniversary of the contract. Plus an unlimited free prepayment at the end of fixation.

Outside these windows, the bank can charge documented costs — typically 0.5–1 % of the prepaid amount. That's why timing matters.

The math: how much you save

Example: 4-million-CZK mortgage at 4.5 %, 25 years. Monthly payment 22,253 CZK. After 5 years, you have 3.5M outstanding.

If you make a one-off 200,000 CZK extra payment at year 5:

• Total interest saved: ~230,000 CZK
• Mortgage end shortened by ~16 months
• Payment stays the same (you opted for "shorten term" not "lower payment")

Effective return on that 200,000 CZK = the mortgage rate (4.5 %), tax-free, risk-free.

When prepayment doesn't make sense

• You don't have an emergency fund. Rule of thumb: 6 months of expenses in liquid savings before any prepayment.
• You have higher-rate debt. Pay off any consumer loan, credit card or car loan first — those have rates 8–20 %.
• You can earn more in safe investments. If state bonds or term deposits beat your mortgage rate net of tax — invest instead.
• Prepayment fee outside windows. If you'd pay a 0.5 % fee + lose interest income, the math turns negative.

Strategy: regular vs. one-off prepayment

Two approaches:

Regular monthly extra: e.g. add 2,000 CZK to every payment. Simple, automatic, big total impact (~70,000 CZK saved on a 4M mortgage over 25 years for just 2,000 extra/month).

One-off lump sum: e.g. annual bonus or inheritance, prepaid in one go. Bigger immediate effect, but only useful if cash is available.

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