Early repayment of a mortgage loan: how does it work?

What are the prepayment fees?

Most of the time, the prepayment of a mortgage is accompanied by penalties. To find out if this is the case, you can start by studying prepayment conditions which is mentioned in your loan agreement.

Note that in the case of a flexible fixed-rate loan (which allows you to reduce or increase your monthly payments under certain conditions) or a variable-rate loan, the contract may allow for partial early repayment without penalty. On the other hand, fixed rate loans have penalties most of the time unless you negotiated to eliminate them at signing. But they are generally used to the extent that these charges are intended for compensate part of the loss suffered by the bank during the operation.

How do I calculate the Advance Payment Fee (IRA)?

If it turns out that you are liable for prepayment fines, you must be aware that in the vast majority of cases they are calculated based on originally borrowed amount. These fines, on the other hand, are limited by law, and the formula maintained by the bank must mandatorily be the one most favorable to the borrower among these two calculations:

  • Either the bank calculates the prepayment costs by keeping 3% of the outstanding capital.
  • Either it takes the equivalent 6 months’ interest taking into account the amount repaid and the interest on the loan, excluding insurance.

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