Early Mortgage Repayment in Israel: What Are the Costs and Interest Implications?
Can You Pay Off Your Mortgage Early in Israel?
Yes, you can pay off your mortgage early in Israel, but whether you’ll face penalties depends on the type of loan you have and how long you’ve been paying it.
What Happens If You Pay Off a 30-Year Mortgage After 5 Years?
If you’ve been paying your mortgage for five years and want to settle the remaining balance in full, the costs will vary based on the loan type and interest rates at the time of repayment.
Types of Mortgages and Early Repayment Costs
| Mortgage Type | Early Repayment Fees? | Key Considerations |
|---|---|---|
| Prime-Based Loan | No penalty | Interest rate fluctuates with market conditions. No prepayment fees. |
| Fixed-Rate Loan | Possible penalty | If market rates are lower than your original rate, you may be charged a penalty to compensate the bank. |
| Semi-Fixed Rate Loan | Penalty depends on timing | If you repay at the end of a fixed period (e.g., 5 years), no penalty. Otherwise, fees may apply. |
How Are Prepayment Fees Calculated for Fixed-Rate Loans?
If you have a fixed-rate mortgage, your lender may charge a penalty based on the difference between:
- Your original interest rate
- The current market rate for new loans
- The remaining time on your mortgage
In Israel, these fees decrease over time:
- After 3 years → 20% reduction in penalty
- After 5 years → 30% reduction in penalty
Example Calculation:
If your original fixed rate was 4%, but today’s market rate is 3%, the lender may calculate a penalty on the difference (1%) for your remaining balance.
Let’s say your outstanding mortgage balance after 5 years is ₪1,000,000, and you have 25 years left:
- Bank calculates interest loss on the 1% difference.
- Reduced by 30% due to the 5-year rule.
- The final penalty amount varies based on the lender’s method of calculation.
Key Takeaways:
- Prime-based loans → No prepayment fees.
- Fixed-rate loans → Fees depend on market rates and time elapsed.
- Semi-fixed loans → No fee if repaid at the end of a fixed period.
- The longer you wait, the lower the penalty.
Before making a decision, check with your bank for an exact calculation of your specific mortgage terms.
