In short: the early-repayment fee is not at the bank’s discretion. The Banking Order (Early Repayment of a Housing Loan), 2002 sets out a closed list of fees on which early repayment may be conditioned, caps some of them, and forbids any charge at all on a directed loan. Anyone paying off a mortgage should know what may lawfully be charged before the calculation sheet arrives.

A directed loan: no fee at all

Section 2 of the Order: a banking corporation shall not condition the early repayment of a directed loan on the payment of any fee whatsoever.

A “directed loan” is defined in the Order as a loan given under an arrangement with the government, the Jewish Agency, the World Zionist Organization, a local authority or one of the companies listed in the First Schedule — whether out of those bodies’ deposits or out of the bank’s own funds. If that is your loan, any early-repayment fee charged was not charged under the Order.

What may be charged on an ordinary loan

Section 3 lists the fees, and the list is closed:

1. An operational fee — “which shall not exceed 60 new shekels”. That is a ceiling, not a tariff.

2. A short-notice fee — where the borrower gave less than ten days’ notice: a fee of one tenth of one percent (0.1%) of the amount repaid. The Order adds two cases in which it is not charged at all:

  • where the bank itself gave a loan for the purpose of the early repayment, the fee is not charged on the amount of that new loan;
  • where the borrower has died, the fee is not charged.

3. A discounting fee — charged only where the average interest rate at the time of repayment is lower than the rate applying to the loan at that time. It may not exceed the difference between the future payments discounted at the average rate and the same payments discounted at the loan’s rate, calculated by the formula in item B of the Second Schedule to the Order.

4. A second discounting basis — under section 3(4), where the average rate at the time the loan was granted was lower than the loan’s rate at that time, a fee is computed on the same method against the average rate at the time of grant.

5. The lower of the two — section 3(5): the bank may charge the fee under sub-paragraph (3) or under sub-paragraph (4), if any, whichever is the lower. That is worth checking on the calculation sheet.

Variable rate: usually no discounting fee

Section 4 deals with a loan whose rate varies and is not known when the loan is taken:

  • Section 4(2): where the dates of rate change are not known in advance, or are known but set at once a year or more often — no discounting fee shall be charged at all.
  • Section 4(3): where repayment is made on the day the rate changes — only the operational fee is charged.

So on frequently resetting variable tracks, repaying at the exit point should cost up to NIS 60.

Index and exchange-rate differentials

Section 5 — index-linked loan: in addition to the section 3 fees, the bank may, where repayment is made between the first and the fifteenth of the month, charge a fee equal to the amount repaid multiplied by half the average rate of change in the index over the last twelve published indices. Repayment from the sixteenth onwards does not carry this fee.

Section 6 — foreign-currency loan: where the borrower gave less than two business days’ notice, the bank may condition repayment on a fee equal to the exchange-rate difference between the day of repayment and two business days later.

What to check on the calculation sheet

  1. The type of loan — directed or not. Directed: no fee.
  2. Whether an operational fee above NIS 60 was charged.
  3. Whether a short-notice fee was charged although the bank itself financed the repayment, or in a case of death.
  4. On a variable track — whether a discounting fee was charged at all, and if so whether the reset dates justify it.
  5. On a linked loan — on which day of the month repayment was made.
  6. On a multi-track loan — how the fee was computed across tracks. That is exactly the subject of a settlement approved against Mizrahi Tefahot in June 2026 concerning the offsetting of discounting differentials between tracks.

What the courts held against Mizrahi Tefahot on mortgages and early repayment

Judgment

Zaghroun v. Mizrahi Tefahot: the bank was negligent in providing a mortgage, and the customer lost an Israel Land Authority tender

The Magistrates' Court held that the bank was negligent when a customer's equity funds were not reflected in time, causing him to lose an Israel Land Authority tender, and ordered it to pay NIS 300,000 less 40% …

Court
Beersheba Magistrates' Court (upheld by the District Court and the Supreme Court)
Amount
300,000 NIS
Topic
mortgages and housing loans
Go to the decision page

What this page is not

This page quotes the language of the Order; it is neither legal advice nor a calculation. The Order has been amended, and the average rate is published and changes. Approval of a class-action settlement is not an admission by the bank, and an amount claimed is not a liability. For an individual check of a calculation sheet consult a professional; to contest a charge, apply to the bank and then to the public enquiries unit of the Banking Supervision Department.

Sources

  1. צו הבנקאות (פירעון מוקדם של הלוואה לדיור), התשס"ב-2002 — נוסח שמפרסם בנק ישראל (PDF)