Financial Dictionary - Early repayment fee
Early repayment fee
The early repayment fee is charged by credit institutions when we cancel a mortgage and leave it without charges, either because we have finished repaying the entire loan, or because we want to sell our property and we cannot do it if it has any outstanding charges. In that case, we can pay the mortgage and the early repayment fee with the money we get from the sale.
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The costs involved in mortgage early repayment expenses are:
- Notary fees. To cancel a mortgage loan we must request a public deed from the notary. Their fees are established by law, although the exact amount will be calculated by applying a percentage on the amount of the mortgage, reduced by 70%. In any case, it will be a minimum of 90 euros.
- Registrar expenses, since we must register the notary deed in the Property Registry to record that we left the house free of charges (which is known as registry cancellation). They are also regulated by the State and are calculated based on a percentage of the mortgage capital, reduced by 60%. They will have a minimum cost of 25 euros.
- Agency expenses, although in this case we can carry out the procedures ourselves and avoid this expense, which may amount to about 300 euros. This fee is not regulated, but in general, if the agency regularly works with the bank that granted the mortgage, it may be agreed by them.
In this case, there is no tax to pay.
Who pays these expenses?
First of all, the holders of the mortgage to be cancelled. Although if a mortgaged home is sold, the buyer and the seller can agree on a cost sharing, although the buyer will never be obliged to accept if they do not want to.
In any case, the buyer will have to cover the costs of setting up the new mortgage (again, notary, registry and agency, in addition to taxes).
What is a provision of funds?
If we are going to sell our apartment and we need to cancel the mortgage first, we can ask our bank to take care of the cancellation. In that case, it will ask us for a provision of funds that will be around 800 to 1000 euros, and that it will allocate to pay the notary, the registrar and the agency.
We can obviously reduce this amount by avoiding the involvement of the bank and contacting an independent agency that adjusts the provision of funds as much as possible, although it is impossible to avoid certain fixed costs, such as the notary, the registry and the early repayment fee.