Hong Life CalculatorsUnderstanding the mortgage prepayment penalty calculator — concept and principle
Many mortgages charge a fee if you repay all or part of the loan early. This calculator estimates that prepayment penalty using the sliding method of Korean banks, a flat percentage or a number of months of interest, and compares it with the interest you would save over the next year.
How it is calculated
- Sliding (Korean banks): penalty = amount repaid × penalty rate × (months left in the penalty period ÷ penalty period). It reaches zero when the period ends.
- Flat: amount × penalty rate while the period lasts.
- Months of interest: amount × annual rate ÷ 12 × number of months, while the period lasts.
- Interest saved over 12 months = amount × loan rate; net saving = that − penalty.
The principle
A lender that receives money early loses the interest it expected and must re-lend or re-invest the funds, often at a different rate. The penalty compensates for that. The sliding method makes the fee shrink every day as the remaining period shortens, reflecting that the lender's loss is smaller the closer the loan is to the end of the penalty period. In Korea, the penalty period is at most 3 years, and since 13 January 2025 lenders may charge only what early repayment actually costs them (funding and administrative costs), which has lowered typical rates.
Worked example
Default inputs: repay 100,000 USD early, sliding method, penalty rate 0.6%, 14 months elapsed, 36-month period, loan rate 4.2%.
- Months left = 36 − 14 = 22 months.
- Penalty = 100,000 × 0.6% × 22 ÷ 36 ≈ 366.67 USD, or 0.37% of the amount.
- Interest saved over 12 months = 100,000 × 4.2% = 4,200.00 USD.
- Net saving after 12 months = 4,200 − 366.67 = 3,833.33 USD.
| Amount you repay early | Prepayment penalty |
|---|---|
| 25,000 | $91.67 |
| 50,000 | $183.33 |
| 75,000 | $275.00 |
| 100,000 | $366.67 |
| 125,000 | $458.33 |
| 150,000 | $550.00 |
| 200,000 | $733.33 |
How to read the result
If the interest saved within a year is much larger than the penalty, repaying early usually makes sense in pure interest terms. Before deciding, compare with what the money could earn elsewhere and keep an emergency fund. Waiting a few months under the sliding method also lowers the penalty.
Common mistakes
- Using the penalty rate from an older contract signed before the 2025 Korean reform without checking your own terms.
- Forgetting that the penalty usually applies only during the first years.
- Comparing the penalty with total remaining interest instead of a realistic horizon.
- Ignoring that banks count days, so the actual figure can differ slightly.
Frequently asked questions
How is the prepayment fee calculated in Korea?
Usually amount repaid × rate × remaining days in the penalty period ÷ penalty period, with the period capped at 3 years.
Is it worth paying a prepayment penalty?
Often yes if the interest you save soon exceeds the fee, but consider liquidity and other uses for the money.
Does the 2025 change apply to existing loans?
The new rules apply to loans contracted after the change took effect. Check your contract or ask your bank.
Sources: 금융위원회, 중도상환수수료 부과체계 개선 (2025년 1월 13일 시행) · 금융소비자 보호에 관한 법률 (대출성 상품 중도상환수수료 부과 제한)