Korea's Mortgage Prepayment Fee: The 0.55% and Three-Year Rules

In Korea, the prepayment fee on a mortgage falls to zero three years after the loan is drawn down. Repay before that and the charge is principal repaid × fee rate × (days remaining ÷ loan term) — with one twist: when the loan term exceeds three years, the third anniversary of the drawdown date is treated as the maturity date. So even on a 30-year mortgage, the denominator in that fraction is 1,095 days. Per KB Kookmin Bank, property-secured loans newly drawn from 1 January 2026 carry rates of 0.55% on floating-rate loans and 0.75% on fixed-rate loans.

Because of that structure, the fee declines in a straight line over time. When you repay very nearly determines what you pay.

What 100 million won costs at each point

Take a floating-rate mortgage drawn in January 2026 and a partial repayment of 100 million won. At 0.55% over a 1,095-day reference period, the maximum fee is 550,000 won, scaled by the share of days remaining.

Two things stand out. First, each month of delay shaves roughly 15,000 won off the fee (550,000 divided by 36 months). Waiting three months instead of two is a difference of about 30,000 won — so if the interest-rate gap is meaningful, delaying costs more than it saves. Second, by the 2.5-year mark the remaining fee is down to about 91,000 won, a level at which it can hardly be the deciding factor.

Many banks also allow up to 10% of principal to be repaid each year with no fee at all. If a partial repayment is planned, the right order is to use that allowance first and calculate the fee on the remainder. Whether the clause applies is written into the loan agreement.

The same 100 million won, twice the fee depending on drawdown date

The rates themselves have fallen sharply over the past two years. The Financial Services Commission rewrote the rules so that prepayment fees may only recover actual costs, and only two categories qualify: losses from disrupted funding operations, and loan-related administrative and origination costs. As Financial News reported at the 13 January 2025 launch, average rates at the five major commercial banks dropped from 1.4% to 0.65% on fixed-rate mortgages, from 1.2% to 0.65% on floating-rate mortgages, and from 0.83% to 0.11% on unsecured loans.

Hold the repayment constant at 100 million won one year into the loan — 730 days remaining, a factor of 0.6667 — and the drawdown date alone produces this spread.

A fixed-rate loan drawn before 12 January 2025 costs 933,000 won against 367,000 won for a 2026 floating-rate loan — a factor of 2.5. The rate is fixed as of the agreement date and does not move afterwards, even if the rate type or the collateral changes. If you are carrying an older loan, the top rows of the table are your numbers.

The fee rate was settled on the day you signed, not on the day you repay.

One detail is worth noting: from 2026 the fixed-rate figure sits 0.2 percentage points above the floating-rate one. Banks fund fixed-rate loans over longer horizons, so early repayment is treated as causing larger funding losses — and applying a strict actual-cost principle brought that gap into the open rather than smoothing it over. How to weigh fixed against floating is covered in our comparison of the new-origination and outstanding-balance COFIX benchmarks.

Coverage has widened too. According to Financial Today, from 1 January 2026 the same actual-cost standard applies to new contracts at mutual finance institutions — Nonghyup, Suhyup, the National Forestry Cooperative Federation and Saemaul Geumgo. Shinhyup, already covered by the Financial Consumer Protection Act, moved earlier.

How many months to earn back the fee on a refinance?

The real question is not whether to pay the fee but whether you come out ahead after paying it. Suppose a 200 million won floating-rate mortgage drawn in 2026 is refinanced at the one-year mark. The fee is 200,000,000 × 0.55% × (730 ÷ 1,095) = 733,333 won. Set against the first-year interest saving at various rate reductions, the payback periods work out as follows.

These savings are first-year approximations on a 200 million won balance. Under equal principal-and-interest amortisation the balance shrinks each month, so real savings run slightly below the table and payback slightly longer. The reference points still hold. Refinancing to shave 0.2 percentage points takes nearly two years to break even, and refinancing again in the meantime turns it into a loss. At 0.5 percentage points or more, the fee is recovered inside a year.

Three further items attach to any refinance: stamp duty and mortgage registration costs on the new loan, a fresh recalculation of the borrowing limit, and a new three-year prepayment clock. The limit deserves particular attention, since repayment-capacity rules may have tightened in the interim and the same amount may no longer be available. The mechanics are set out in our calculation of how much stress DSR cuts from the limit.

What to check

• The prepayment clause in your loan agreement — the rate and the 1,095-day reference period are written there verbatim
• Whether your agreement date falls before or after 13 January 2025 — that single line can more than double the rate
• Whether the loan carries an allowance to repay up to 10% of principal each year without a fee
• If fewer than six months remain on the three-year clock, the fee is already below 20% of its maximum — there is little reason to keep waiting
• Current rates by bank at the Korea Federation of Banks consumer portal loan fee comparison
• For a refinance, calculate annual savings as reduction × balance first, then divide by the fee — below 0.3 percentage points, recovery takes more than a year

Sources

• Loan prepayment fees: types and calculation (KB Kookmin Bank)
• Q&A: prepayment fee cuts apply to renewals of existing contracts too (Financial News)
• Prepayment fee reform and consumer burden relief measures (Financial Services Commission)
• Mutual finance cuts prepayment fees, closing a consumer-protection gap (Financial Today)
• Loan fee comparison disclosure (Korea Federation of Banks consumer portal)