When extra mortgage payments beat bonds: a German homeowner's math
The 'if bond yield beats mortgage rate, invest' rule ignores German capital-income tax. For an employee whose annual allowance is already used, a 3.2% mortgage needs a German government bond yielding roughly 4.35% to win, and nothing on the curve clears that bar.
The standard advice for a German homeowner sitting on a monthly surplus is one line long: if a safe bond yields more than your mortgage rate, buy the bond. It is wrong as stated. The mortgage rate comes out of after-tax euros; the coupon on a Bund (a German government bond) is taxed before it reaches your account. Comparing the two gross rates is a category error, and the size of that error is bigger than most borrowers expect.
The math
Correcting for tax is one division. For an employee whose Sparerpauschbetrag (annual capital-income tax-free allowance) is exhausted and who pays no Kirchensteuer (church tax):
required_pretax_yield = mortgage_rate / (1 − 0.26375)
The 26.375% in the denominator is Abgeltungsteuer (Germany's 25% flat tax on investment income) plus Soli (a 5.5% solidarity surcharge applied on top of the tax itself). Whatever the mortgage rate is, divide by 0.73625 to get the gross yield a bond has to clear before tax closes the gap.
Worked out for the rates Interhyp is quoting for the week of 4 to 10 May 2026, paired with the gross yield a Bund would need to clear after Abgeltungsteuer plus Soli:
| Mortgage (eff. p.a.) | Required gross Bund yield (no Kirche) | With 9% Kirchensteuer |
|---|---|---|
| 3.20% | 4.347% | 4.444% |
| 3.72% (10y, 70% loan-to-value) | 5.053% | 5.166% |
| 3.82% (10y, 80% LTV) | 5.189% | 5.305% |
| 4.06% (10y, 90% LTV) | 5.516% | 5.638% |
| 4.09% (15y, 70% LTV) | 5.557% | 5.679% |
| 4.34% (15y, 90% LTV) | 5.896% | 6.027% |
What the German Bund curve actually pays, as of 15 May 2026: 2.73% at 2 years, 2.86% at 5 years, 3.15% at 10 years (its highest level since May 2011), 3.67% at 30 years. Every yield is below the breakeven for every mortgage rate in the table. A borrower lucky enough to hold a 3.20% mortgage from an earlier vintage is not competing with a 3.20% Bund but with a 4.35% one, and the 10-year still has to rise by roughly 120 basis points before the after-tax math even ties. At the rates Interhyp is quoting new borrowers in May 2026, the gap is closer to 190bp. That has not happened in fifteen years and is not priced in.
What to do if this is you
The modal reader is a German employee on a fixed-rate Annuitätendarlehen (annuity mortgage) between 2.8% and 4%, with €500 to €1,500 per month going spare and the allowance already consumed. For that borrower, Sondertilgung (a fee-free extra payment) wins. Most lenders let you prepay up to 5% of the original loan per year fee-free; some will sell you 10% with a small Zinsaufschlag (interest premium). On an annuity loan that has a double effect: the term shortens, and because the monthly payment is fixed, the principal share of every remaining instalment ticks up.
If you track both sides in Wealthmap, your mortgage sits in the Liabilities view with its outstanding balance and rate, and the early-repayment calculator on the loan card models the shorten-term vs reduce-payment trade. Bunds or bond ETFs go in the Assets view, and the after-tax delta flows into the net worth chart. The mortgage is exactly the kind of position a brokerage app never shows you: for the median euro-area household it dominates the balance sheet, and any decision taken on the broker pie alone is taken against the wrong denominator. One caveat: the calculator is a pure mortgage tool and does not currently subtract Abgeltungsteuer from the bond side, so use the breakeven table above as the sense-check.
Three places this argument breaks
The math above is clean, but it assumes a specific borrower. Three carve-outs flip it.
The first is the allowance itself. The first €1,000 of capital income per single filer (€2,000 for jointly assessed couples) is tax-free, registered via a Freistellungsauftrag (the tax-exemption order you file with each bank). On a €30,000 Bund position yielding 3%, total interest is €900, inside the allowance, so the effective tax is zero and the naive rule applies. The gross-up only bites once the allowance is consumed, which for this audience usually it already is. If you are starting fresh, the first ~€33,000 single (€66,000 joint) is a different regime. Do not apply the formula to euros that are not actually taxed.
The second is a rented investment property, which reverses the sign. Mortgage interest on a vermietete Immobilie (rented property) is fully deductible as Werbungskosten (income-related expenses, §9 of the German income-tax code). A landlord in the 42% Spitzensteuersatz (top marginal income-tax bracket) on a 3.8% gross mortgage rate is effectively financing at about 2.2% after the deduction. A 3.15% gross Bund yield, taxed at 26.375%, lands at roughly 2.32% net, which beats it. The 2.2% figure is back-of-envelope: the precise number depends on Soli on the income-tax side, whether the 45% Reichensteuer (the surcharge bracket that kicks in above roughly €278k single income) applies, and other factors a tax adviser would walk through. The direction of the argument does not change, but the magnitude can. For owner-occupied debt the interest gets no such relief; for rental debt the bond wins. This is the single most common case where the headline of this post is exactly backwards.
The third is KfW. Never prepay a KfW loan. Subsidised KfW tranches in spring 2026 run from 0.01% to about 1.21% effective per annum, depending on programme: 0.6% for KFN Effizienzhaus 40, 1.0% for the 55 variant. Against a 2.73% short Bund yielding roughly 2.01% net of Abgeltungsteuer, the spread is comfortably positive. If your financing is blended, the calculation applies to each tranche separately: prepay the expensive bank mortgage, leave the KfW alone, possibly forever.
And one extra layer for an investor weighing the equity side of the same euro: a German Bund is not the only post-tax-comparable instrument. A regional equity tilt with its own wrapper math — for example the Polish equities tactical overweight via SPOL — has a totally different after-tax profile (Polish dividend WHT, German Vorabpauschale on the accumulating UCITS), and "the bond beats the mortgage" arithmetic does not transplant onto it. Worth being explicit about which asset you're actually comparing the mortgage rate against.
The mechanics worth knowing before you act
Prepaid principal is illiquid. You cannot un-prepay a mortgage without re-borrowing at the prevailing rate, around 3.8% today. Bunds remain sellable on Tradegate intraday. If your Notgroschen (emergency cash buffer) is thin, the optionality of liquid fixed income may be worth the negative spread until you have three to six months of expenses set aside.
Stay inside the Sondertilgungsrecht (the contractual fee-free prepayment cap). Above that cap, typically 5% per year of the original principal, the bank charges a Vorfälligkeitsentschädigung (a prepayment penalty) computed from foregone interest. The 5% allowance also has to be subtracted from the bank's claim regardless of whether you used it, which means unused capacity has value on a future Sondertilgung but no value if you are not selling the property. Plan the cadence to use it but not exceed it.
Use yield-to-maturity, not the coupon. The right number to plug into the breakeven is the bond's (or bond ETF's) yield-to-maturity, the figure that already accounts for the bond trading above or below par. You will find it on the fund's factsheet: the iShares eb.rexx Government Germany 1.5–2.5yr ETF (ISIN DE0006289473) lists it directly, as one example of where to look. The headline coupon rate overstates what you actually earn on premium-priced Bunds.
The Bauzinsen (mortgage-rate) consensus is no help here. Interhyp's expert panel had 80% expecting flat rates over the next four weeks and 60% expecting rises over 6 to 12 months. If they are right, the breakeven gap widens, not closes.
This is not personal financial advice. Tax treatment depends on your residence and individual circumstances; check with a qualified professional before acting on anything here.