The BOI promotes change of calculation of early repayment of a mortgage
The main change: Neutralization of the borrower's risk component
The Supervisor of Banks, David Zaken, is presenting a proposed amendment regarding early repayment fees charged for early repayment of housing loans (mortgages). The proposed amendment to the Order eliminates the borrower risk component when calculating the capitalization differentials fee in early repayment of a mortgage, so that borrowers who were assessed as high risk by the bank when they took out the loan, and were assigned a relatively high interest rate, will not pay capitalization differentials in respect of the risk component.
Currently, before the amendment to the legislation, calculation of the capitalization differential is based on the average interest rate known on the early repayment date, and on the actual interest rate on the loan. Since the interest rate on the actual loan is assigned in accordance with the bank's assessment of the borrowers and their ability to repay the loan, a distinction has in effect been created between borrowers. Some borrowers, for whom the interest rate set for them on the loan was higher than average, are forced to pay a higher capitalization differentials fee than borrowers for whom the interest rate set for them on the loan was below the average.
Based on the proposed amendment, the average interest rate in the mortgage market, according to which the repayment will be calculated, will not be compared to the borrower's interest rate on the loan on the date the mortgage was taken out, but will be compared with the average interest rate on mortgages as was known on the day the mortgage was taken out.
It is also suggested that the amendment be effective on all early repayments carried out after it goes into effect. With that, early repayments of mortgages which were granted before the amendment went into effect, in which the interest rate on the loan was lower than the average interest rate known on the day the mortgage was taken out, will remain as it was before the amendment.
The proposed amendment was formulated after a discussion on the issue was held in the Economics Committee of the Knesset, following a petition by Dr. Danny Ben-Shahar of the Technion, Prof. Neta Ziv and Attorney Ora Bloom of the Legal Clinical Program at Tel Aviv University.