Mortgage Early Repayment Fee – How Much It Costs and How to Pay Less
Received an inheritance, sold a property, or simply want to pay off your mortgage early? Great. But before you transfer money to the bank, it's worth understanding what the early repayment fee is, when it's high, and when you can reduce it – or even avoid paying it altogether.
What makes up the early repayment fee?
The fee isn't a single amount. It's made up of several components, and the calculation depends on the tracks you took:
Operational fee – a small, fixed amount, up to a few dozen shekels.
Fee for not giving advance notice – if you didn't notify the bank in advance. You can avoid it entirely by giving written notice 10 to 45 days before the repayment.
Capitalization fee (interest differential) – the significant component. It arises when today's average market interest rate is lower than the rate set on your loan, mainly on fixed-rate tracks. The regulations require the bank to give a discount on it, which grows the more time has passed since the start of the loan.
CPI averaging fee – only on CPI-linked tracks, and it depends on the day of the month on which you make the repayment.
Which tracks have almost no fee?
The prime track – it has no capitalization fee, so repaying it early is very cheap.
Variable rate – repaying on the date the rate changes (for example, every 5 years) is usually exempt from the capitalization fee.
Ministry of Housing eligibility loans – exempt from the capitalization fee.
To understand the most important track, read the article What Is the Prime Rate.
4 ways to reduce the fee
Notify the bank in advance, in writing – you save the no-notice fee.
Choose your timing – on CPI-linked tracks, when in the month you repay affects the fee. Repaying on a rate-change date saves the capitalization fee.
Repay wisely – you don't have to repay the entire mortgage. It's usually better to repay the expensive tracks with the low fee first.
Ask the bank for a fee statement – before any decision, ask the bank for a letter detailing the exact fee for each track and each date.
Full repayment or refinancing?
Sometimes the goal isn't to close the mortgage but to lower the monthly payment or the total cost. In such cases, mortgage refinancing may pay off more. In the article Mortgage Refinancing – When Is It Worth It we explained how to check this.
The key rule: before you pay a fee, do the math. A professional review of your existing mortgage takes little time and can save thousands of shekels.
Book an introductory call – we'll review your situation together and build a plan tailored to you.
This article is for general information only and does not constitute personal advice.
