The fee is regulated by the Banking (Early Repayment of Housing Loans) Order. It has up to four parts: an operational fee of up to ₪60; a fee of 0.1% of the amount repaid if you gave less than 10 days' notice; the capitalization fee; and, on CPI-linked loans repaid between the 1st and the 15th of the month, an average-CPI fee. Give notice at least 10 days and no more than 45 days before the repayment date.
The capitalization fee compares your remaining payments discounted at the Bank of Israel's average mortgage rate with the same payments discounted at your rate, where your rate counts as the lower of the contractual rate and the average rate on the day you borrowed. If today's average rate is higher than that, there is no fee: a 5% loan taken when the average was 3% has none while the average is 4%. On an ordinary loan the fee is cut by 20% once the loan is 3 years old and by 30% at 5 years; a bank loan supplementing a Zakaut loan is cut by 10%, 20%, 30% and 40% after 1, 2, 3 and 4 years. Tracks whose rate can change at least once a year (Prime) have no capitalization fee, and on a reset track repaid on the reset date only the operational fee applies.
The pitfall is timing. Repaying a few days before an anniversary instead of after it, or in the first half of the month on an indexed loan, can cost real money. When you ask to repay, the bank must give you a written term sheet with every fee and its amount.
Example
You repay the ₪300,000 left on a Kalatz at 5% with 15 years to go, when the Bank of Israel's average rate is 4%. The remaining payments are worth about ₪322,300 at 4%, so the capitalization fee is about ₪22,300 (assuming the average rate on the day you borrowed was about 5.2% or more; had it been 3%, your rate would count as 3% and there would be no fee at 4%). On an ordinary loan, after the 3rd anniversary it falls 20% to about ₪17,800; after the 5th, 30% to about ₪15,600. Notice shorter than 10 days adds 0.1% (₪300).