Why Prepayment Fees Were Halved — The Actual-Cost Reform and Whether It Applies to Your Loan

Prepayment Fees Are Money the Lender Normally Cannot Take

Starting from the beginning makes this easier. The Financial Consumer Protection Act prohibits prepayment fees in principle, because charging them punishes a consumer for clearing debt faster.

The same provision carries exceptions, and the main one is repayment within three years of the date the loan contract was formed. Every prepayment fee we know today rests on that exception.

One practical conclusion falls out of this. If more than three years have passed since you took the loan, there is no prepayment fee. That is why so many borrowers weigh refinancing in year three.

The Basis for the Calculation Changed on 13 January 2025

Being allowed to charge did not mean the amount was unconstrained. Regulators amended the supervisory rules so that loans newly executed from 13 January 2025 use a new method.

The core of it is the standard of actual cost. What may be built into the fee was narrowed to two categories.

• Opportunity cost from disrupted funding — interest lost while a new lending outlet is found, and interest lost to rate differences on re-lending
• Administrative and origination costs — stamp duty, appraisal fees, collateral registration costs, lease investigation fees, and referral commissions

And adding any item beyond those two counts as an unfair business practice. A bank can no longer decide by custom that "our rate is 1.4 percent."

Mortgage Rates Came Down by About Half

The rates banks published right after the change looked like this.

• Fixed-rate mortgages — from 1.4% to around 0.65%, an average cut of 0.75 percentage points
• Variable-rate secured loans — from 1.2% to around 0.65%, an average cut of 0.55 percentage points

On a 100 million won prepayment, the starting point of the calculation fell from 1.4 million won to 650,000 won. That said, these figures are close to an industry average and differ by bank. Actual cost is recalculated annually, so the published rates shift a little each year.

Whether It Applies to You Depends on the Contract Date

This is where expectations most often break. The new rates apply only to new contracts concluded on or after 13 January 2025. Loans taken before that keep the rate written into the original agreement. That is why the answer from your bank differs from the headline you read.

So if you plan to prepay a loan taken out in 2024 or earlier, check the rate printed in your own loan agreement rather than the number in the news. It appears in the agreement and on the loan detail screen in online banking.

What You Actually Pay Shrinks with the Remaining Term

The rate is not simply multiplied through. The usual structure is this.

Amount prepaid × fee rate × (remaining period ÷ fee-charging period)

The charging period is typically three years. Repay right after the loan is executed and you pay close to the full rate; the burden falls proportionally as time passes and reaches zero at the three-year mark. Repay at two years and six months and only about a sixth of the rate applies.

The exact formula and charging period vary by product, so confirm the figure through your bank's app or a branch rather than estimating.

Three Numbers to Compare Before Refinancing

If you are weighing a switch, put these three on the same page before deciding.

• The fee you pay now — the real burden calculated with the formula above
• Interest saved by the rate difference — measured across the whole remaining term
• The three-year clock that restarts — refinancing resets the prepayment window

The third one gets forgotten most often. Borrowers switch for a small rate improvement, then pay another fee a year later when better terms appear. How a loan rate is assembled is set out in the structure of loan interest rates, and credit score management is worth reading alongside it, since it affects the new approval.

Spare Cash — Repay, or Park It?

The decision comes down to comparing your loan rate against deposit rates. If the loan rate is higher, repaying wins as a baseline — but inside the three-year window you must subtract the prepayment fee from the interest you save.

Putting emergency savings into repayment is harder to recommend. Money repaid cannot be pulled back out, and an urgent need turns into a more expensive personal loan. Interest structures are compared in deposits versus installment savings, and where to hold short-term cash is covered in parking accounts versus CMAs.

Check in This Order

• ① Has it been three years since the loan was executed? If so, no fee applies
• ② Was the contract dated on or after 13 January 2025? This splits which rate applies
• ③ Find your product's rate and charging period in the agreement or app
• ④ Calculate the real burden and weigh it against the interest saved

Published prepayment fee rates for each financial company are available on the websites of the respective financial associations, including the Korea Federation of Banks. Terms differ by product and enrollment date, so base any final decision on your own loan agreement and the guidance of the institution that holds it.