I am selling my Israeli apartment from London. What will the bank charge me to repay the mortgage early?

The quote arrives from the branch as a single number in Hebrew with no breakdown, and most owners abroad treat it as a tax. It is not. Israeli early repayment fees are fixed by an order of the Governor of the Bank of Israel, the order is prescriptive about what may be charged, and a large part of a typical quote disappears once the loan file is read against it.

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Detailed Answer

The governing instrument is the Banking Order (Early Repayment of a Housing Loan) 5762-2002. Section 3(1) permits an operational fee that may not exceed NIS 60. Section 3(2) permits a fee of one tenth of one percent of the sum repaid where the borrower gives less than ten days written notice, and that charge does not apply on the death of a borrower or on the part refinanced by a new loan from the same bank. Sections 3(3) and 3(4) permit the capitalisation differential fee, which is the component that produces the frightening figures, calculated under the Order's second schedule wherever the current average interest rate is lower than the rate on your loan. Section 5 adds an index differential fee on linked tranches, and it bites only where repayment falls between the first and the fifteenth of the month. Section 6 adds an exchange rate differential fee on foreign currency tranches. Section 2 forbids any fee at all on a directed loan.

Two provisions do most of the work. Section 4(3) removes the capitalisation fee where repayment is made on a tranche's interest rate change date, leaving only the NIS 60 operational charge. Section 8 reduces the capitalisation fee by thirty percent where more than five years of the loan term remain, and by twenty percent where between three and five years remain. Neither is applied for by the borrower. Both are supposed to be applied by the bank, and in practice a first quote often contains no reduction line at all.

British owners are hit hardest by the structure of an Israeli mortgage rather than by any hostility to non-residents. An Israeli housing loan is normally split into several tranches, typically a prime linked tranche, a CPI linked tranche with an interest change date every five years, a fixed unlinked tranche, and sometimes a foreign currency tranche offered because the borrower's income was in sterling. Each tranche is priced separately under the Order, and each carries its own interest change date. Nobody at the branch is obliged to tell an owner in London which sections apply to which tranche, and the payoff quote will not be written in English. Ask for the loan file with the amortisation schedule and the interest change date for every tranche before you agree a completion date, because the completion date is the single lever that matters most. Where the mortgage has to be cleared as part of a sale, the discharge runs alongside the letter of undertaking machinery described in our answer on selling a mortgaged Israeli apartment as a non-resident.

In Practice: Under Section 3(1) of the Banking Order (Early Repayment of a Housing Loan) 5762-2002 the operational fee is capped at NIS 60 per tranche, and Section 4(3) replaces the whole capitalisation fee with that NIS 60 where repayment lands on a tranche's interest rate change date. On a real file handled for owners abroad, a CPI linked tranche of NIS 510,000 carried a quoted capitalisation fee of NIS 71,300 that fell to NIS 60 by moving completion nineteen days, and Section 8 cut a further tranche's fee from NIS 37,300 to NIS 26,110. Written notice of at least ten days removes the Section 3(2) charge, and the bank issues its letter of undertaking to the buyer's lawyer about eight days before completion, with the Land Registry (Tabu) lien released within roughly two weeks afterwards.

When to Consult a Lawyer

• Your mortgage has three or more tranches with different interest change dates, because the completion date can only sit on one of them and the choice should be made by arithmetic rather than by the buyer's diary.
• The bank has quoted a single figure with no breakdown by tranche and no reduction line, which usually means Section 8 has not been applied.
• You are repaying out of sale proceeds and the buyer's lawyer has already fixed a completion date, since moving it by a fortnight is far easier before the contract is signed than after.

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Speak With an Israeli Attorney

We read the loan file against the 2002 Order tranche by tranche, tell you which completion dates are worth negotiating for, and take the discharge and the lien release through to a clean Land Registry record.

Contact us for a confidential initial consultation.