You are allowed to repay a mortgage, in whole or in part, ahead of time. But the bank may charge fees, according to rules set in the Banking Order. These are the components:
1. Operational fee
A fixed, low handling fee (limited by the Order to a few tens of shekels).
2. No-notice fee
Up to 0.1% of the amount repaid. You avoid it by giving the bank written notice 10 to 45 days before the repayment date. Refinancing at the same bank and death are exempt from it.
3. Capitalization fee (interest differential)
The significant fee. It applies when the rate on your loan is higher than the average rate published by the Bank of Israel on the repayment date. It compensates the bank for the interest it would have earned. The Order requires the bank to give a discount of 10% to 40% on this fee, depending on the type of loan and the time that has passed.
- Fixed tracks – this is where most of the capitalization fee risk lies.
- Prime – usually no capitalization fee.
- Variable every 5 years – no capitalization fee at the reset point. Variable every 5 years
4. Average CPI fee
Only on linked tracks, and only when you repay between the 1st and the 15th of the month. Repaying between the 16th and the end of the month avoids it. What is the CPI?
Special exemptions
Borrowers with an eligibility certificate from the Ministry of Construction and Housing are exempt from early repayment fees on the subsidized loan (the eligibility loan).
How to reduce the fees
- Give advance notice in writing 10–45 days ahead.
- Repay after the 15th of the month on linked tracks.
- Wait for an exit point on variable tracks.
- Ask for a payoff balance statement and check the fee for each track separately. Sometimes it is worth repaying only some of the tracks.
More: when to refinance, when early repayment makes sense.