Mortgage Penalty Calculator
Estimate the penalty and cash-rebate clawback for early mortgage redemption (paying off or refinancing early), the total cost of prepayment.
Input Data
Results
At a glance:Early mortgage redemption can cost a penalty and the return of any cash rebate. Penalty interest = outstanding balance × penalty rate%; total early-repayment cost = penalty interest + cash rebate to return. Exact terms follow the loan contract and the penalty period year.
Formula
Penalty interest = outstanding balance × penalty rate%.
Total cost = penalty interest + cash rebate to return.
How to Use
- Enter the outstanding mortgage balance.
- Enter the penalty rate and the rebate to return.
- Read the penalty and the total early-repayment cost.
FAQ
Why do I get penalised for paying off the mortgage early?
To the borrower it feels odd, but to the bank a mortgage is a long-term investment expected to earn interest for a decade or two. When it granted the loan, the bank often gave you a cash rebate upfront to win the business, expecting to recoup it through years of interest. If you redeem early or switch banks, the bank loses that expected interest and the rebate it advanced. So during the penalty period (usually the first 2–3 years) it charges a penalty (typically a percentage of the outstanding balance) and asks you to return the rebate. Once the penalty period ends, early repayment is generally free.
Before refinancing, how do I judge whether the penalty is worth paying?
Compare the cost of refinancing against the interest you would save. Cost side: the total early-repayment cost from this calculator (penalty + rebate return) plus other refinancing expenses — legal fees, a new valuation fee, possible mortgage insurance. Benefit side: the interest saved over the period you intend to hold after moving to the lower rate, plus any new cash rebate. If (interest saved + new rebate) clearly exceeds (penalty + returned rebate + refinancing costs), refinancing pays off — but also consider the payback period and whether you can still pass the bank's income and stress tests. Many owners simply wait until the penalty period ends before refinancing.
What should I watch for when using this calculator — are all banks' penalties the same?
Penalty terms vary greatly between banks; this tool is a generic simplified model and the actual amount must follow your contract. Key differences: first, whether the penalty rate declines by year — many banks charge the highest rate in year one and step it down in years two and three, so enter the rate for the year you are in. Second, how the rebate is clawed back — some require a full return, others proportional to time served; this calculator assumes the full amount you enter, so adjust if yours is proportional. Third, an annual penalty-free prepayment allowance — some plans let you prepay a certain percentage each year without penalty, so a small partial repayment may cost less than shown. Fourth, confirm the balance used is the correct outstanding amount. Once the penalty period passes, penalty and rebate return are usually zero.
How long is the penalty period, and is it completely free afterwards?
In Hong Kong the penalty period is most often the first 2–3 years from when the loan is drawn. During it, early redemption or switching usually triggers a penalty (a percentage of the outstanding balance) and a rebate return; the rate often steps down year by year. Once it ends, you can normally redeem or switch freely with no penalty and no rebate return, which is why many owners 'wait out the penalty period before refinancing'. But the length, the rate method and the rebate treatment differ by bank — always check your own contract, and even after the nominal period, confirm with the bank whether any other limits or fees apply.
Why do some banks claw back the rebate proportionally, and what should I enter?
The cash rebate is an upfront concession the bank expects to earn back through your long-term interest. If you repay early, the bank asks for it back; the two common methods are full return (within the penalty period, return the whole rebate — this calculator's default, just enter the original amount) and proportional return (some banks scale it by how much of the penalty period you have already served, so the longer you have paid, the less you return). If your contract is proportional, enter the actual amount you must return, not the full rebate, so the total cost is accurate.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.