You compare rates online, spot a loan 0.8 percentage points cheaper than the one you have, and get ready to switch. Then the prepayment penalty appears: moving a 200 million KRW balance costs 1.6 million KRW in fees. Most borrowers react in one of two ways — "the rate is lower, so it must be worth it," or "1.6 million? Forget it." Both are guesses.
The reality is simpler. Refinancing is a trade where you pay a fee up front and get it back in monthly instalments of saved interest . The number that decides the trade is not the rate gap and not the fee amount. It is the break-even point: how many more months you must keep paying before the savings overtake the fee. This guide gives you that formula and shows how the answer shifts across balances, rate gaps, and how long you have held the loan.
1. The Answer First: Three Common Situations Side by Side
Below are the three scenarios people ask about most, all measured the same way. Each assumes a mortgage-standard fee rate of 1.2% over a 3-year (36-month) penalty period.
| Situation | Balance · rate gap | Months elapsed | Prepayment fee | Monthly saving | Break-even | Verdict |
|---|---|---|---|---|---|---|
| A. Loan is brand new | 200M · 0.8%p | 6 | 2.00M KRW | ~133,000 KRW | ~15 months | Worth it if the term is long |
| B. Roughly halfway through | 200M · 0.8%p | 18 | 1.20M KRW | ~133,000 KRW | ~9 months | Worth it |
| C. Small rate gap | 200M · 0.3%p | 12 | 1.60M KRW | ~50,000 KRW | ~32 months | A loss if under 3 years remain |
Same balance, same fee rate — yet break-even ranges from 9 to 32 months. That spread is exactly why "a lower rate is always better" fails as a decision rule. As the verdict column shows, the conclusion only appears once you place the break-even point next to the number of months you will actually keep this loan .
2. How the Fee and the Savings Are Each Calculated
You need both numbers separately before you can compare them. Fortunately both formulas are short.
The prepayment fee shrinks as the penalty period runs down
The standard clause in a loan agreement reads like this:
Prepayment fee = principal repaid × fee rate × (remaining penalty months ÷ total penalty period)
The last bracket does the work. You are not charged a flat 1.2%; you are charged only the fraction of the penalty period still outstanding. Right after the loan is drawn you pay close to the full 1.2%. Two years in, only the remaining 12 months count, so you pay a third. After three years, nothing. This sliding structure is what makes timing matter.
Repaying a 200 million KRW balance in full, the fee by elapsed time looks like this:
| Months elapsed | Remaining | Calculation | Prepayment fee |
|---|---|---|---|
| 6 | 30 | 200M × 1.2% × 30/36 | 2,000,000 KRW |
| 12 | 24 | 200M × 1.2% × 24/36 | 1,600,000 KRW |
| 18 | 18 | 200M × 1.2% × 18/36 | 1,200,000 KRW |
| 24 | 12 | 200M × 1.2% × 12/36 | 800,000 KRW |
| 30 | 6 | 200M × 1.2% × 6/36 | 400,000 KRW |
| 36 or more | 0 | Waived | 0 KRW |
The interest saved is the balance times the rate gap
For the first month, the saving is close enough to this:
Monthly interest saved ≈ outstanding balance × rate gap (in percentage points) ÷ 12
Moving 200 million KRW from 4.5% to 3.7% gives a 0.8 percentage point gap, so 200M × 0.008 ÷ 12 ≈ 133,000 KRW. Running an actual amortisation schedule for both loans gives 1,587,000 KRW of cumulative savings in year one — almost identical to the 1.6 million the shortcut predicts. The saving does taper as the principal falls, but break-even usually lands within one to three years, and over that window the approximation never flips the answer.
3. The Break-Even Formula: The Balance Cancels Out
Divide one figure by the other and you get the number you came for:
Break-even months = prepayment fee ÷ monthly interest saved
Substitute the two formulas above and something useful happens:
Break-even months = 12 × fee rate (%) × (remaining ÷ penalty period) ÷ rate gap (%p)
The loan balance disappears from the equation. Both the fee and the savings scale with the balance, so whether you owe 50 million or 500 million KRW, the number of months to recoup the fee is identical. The common belief that "a bigger loan demands more caution" is wrong on this specific question. A larger balance magnifies the gain and the loss by the same multiple; it never changes which direction the trade points.
Check scenario A against the formula: 12 × 1.2 × (30 ÷ 36) ÷ 0.8 = 15 months, matching the table exactly.
Three practical lessons fall out of this. First, the rate gap is the strongest lever, because it sits in the denominator — doubling it from 0.4 to 0.8 percentage points halves the break-even. Second, simply waiting improves your terms, since a shorter remaining penalty period means a smaller fee. Third, the size of the loan is not a decision input.
4. Break-Even by Rate Gap and Elapsed Time
Here is the same maths laid out as a lookup table. All figures assume a 1.2% fee rate over 36 months, and the values are months.
| Elapsed ↓ / Rate gap → | 0.3%p | 0.5%p | 0.8%p | 1.0%p | 1.5%p |
|---|---|---|---|---|---|
| 6 months (30 left) | 40.0 | 24.0 | 15.0 | 12.0 | 8.0 |
| 12 months (24 left) | 32.0 | 19.2 | 12.0 | 9.6 | 6.4 |
| 18 months (18 left) | 24.0 | 14.4 | 9.0 | 7.2 | 4.8 |
| 24 months (12 left) | 16.0 | 9.6 | 6.0 | 4.8 | 3.2 |
| 30 months (6 left) | 8.0 | 4.8 | 3.0 | 2.4 | 1.6 |
| 36 months or more | 0 | 0 | 0 | 0 | 0 |
Reading it takes one step. If the months you will keep the loan exceed the number in your cell, refinancing wins ; if not, it loses. Say you are a year into the loan with a 0.5 percentage point gap: break-even is 19.2 months. With 15 years of term left that is an easy yes, but if you plan to sell the property next year, staying put is cheaper.
Unsecured personal loans usually carry a lower fee rate of 0.7–0.8%, which pulls every value down. At a 0.8% fee rate, 12 months elapsed and a 1.5 percentage point gap, the calculation gives 12 × 0.8 × (24 ÷ 36) ÷ 1.5 ≈ 4.3 months. That is why refinancing a personal loan clears the bar far more easily than refinancing a mortgage.
5. Two Worked Examples
Example 1: 200 million KRW mortgage, 20 years remaining
- Terms: 200M balance, 4.5% → 3.7%, 20 years left, 12 months since drawdown, 1.2% fee rate, 3-year penalty period
- Prepayment fee: 200M × 1.2% × 24/36 = 1,600,000 KRW
- Monthly payment: 1,265,000 → 1,181,000 KRW, a drop of about 85,000 KRW
- Break-even: 12 × 1.2 × (24 ÷ 36) ÷ 0.8 = 12 months
Running both amortisation schedules, cumulative interest saved reaches 1,587,000 KRW after one year, 3,143,000 after two, 4,664,000 after three, and 7,587,000 after five. Net of the 1.6 million fee you are 1.54 million ahead at year two and 5.99 million ahead at year five. Held to maturity, total savings reach 20.33 million KRW for a net gain of 18.73 million. This is the textbook case where refinancing clearly wins.
Example 2: 50 million KRW personal loan, 4 years remaining
- Terms: 50M balance, 6.5% → 5.0%, 12 of 60 months elapsed, 0.8% fee rate, 3-year penalty period
- Prepayment fee: 50M × 0.8% × 24/36 = 267,000 KRW
- Break-even: about 4.3 months
Cumulative savings run to 697,000 KRW after one year, 1,271,000 after two, and 2,085,000 by maturity. You recover the fee in five months and every month after that is pure gain. A wide rate gap makes the decision this easy.
Example 3: Switching for only 0.3 percentage points
- Terms: 200M balance, 0.3%p gap, 12 months elapsed, 1.2% fee rate, 3-year penalty period
- Fee 1,600,000 KRW against roughly 50,000 KRW saved per month
- Break-even: 32 months
You would repay for nearly three years just to get back to zero, and the closing costs covered in section 7 push the real figure past three years. At this rate gap, ask your current bank for a rate reduction instead, or wait out the remaining penalty period and move when the fee is waived.
6. Four Situations Where Refinancing Loses Money
Some switches look profitable on paper and still cost you.
Your remaining term is shorter than the break-even
This is the most common mistake. With a 15-month break-even and only a year of term left, you pay the fee and never recoup it. Even with term remaining, if you plan to sell the property or repay with a lump sum, count only the months up to that event.
You might refinance again soon
The new loan starts its own three-year penalty period. If a better offer appears six months later, you pay the fee twice. In a falling-rate environment, "wait one more cycle" belongs in the comparison.
Your borrowing limit shrinks
Refinancing means a fresh credit assessment. If debt-service or loan-to-value rules, or a change in income, produce a limit below your current balance, you must cover the gap in cash. Borrowing that gap on an unsecured loan can wipe out the interest you set out to save.
The nature of the loan changes
Moving from a fixed rate to a variable one means today's rate gap may not survive. Losing an interest-only grace period can push the monthly payment up rather than down; the difference between a grace period and a repayment period is covered in our guide to grace vs. repayment periods. Leaving a subsidised policy loan for a commercial product also means weighing preferential terms and guarantee fees, not just the headline rate.
7. Closing Costs You Must Add to the Break-Even
The prepayment penalty is not the only cost. Mortgages in particular require re-registering the security interest, which brings extra charges.
| Item | Rough cost on a 200M loan | Who pays |
|---|---|---|
| Stamp duty | ~150,000 KRW, tiered by loan size | Usually split with the bank |
| Government housing bond purchase | Tens of thousands in discount loss | Borrower |
| Mortgage registration agent | Tens of thousands and up | Varies by product |
| Property appraisal | Free to a few hundred thousand | Often covered by the bank |
| Fire insurance premium | Tens of thousands per year | Borrower |
Online refinancing platforms often have the receiving bank absorb much of this, which cuts the real outlay considerably. Even so, add the closing costs to the fee before dividing. If 500,000 KRW of costs applies to Example 1, the fee effectively becomes 2.1 million and break-even stretches from 12 to about 15.8 months. The direction does not change there — but in Example 3, with its narrow rate gap, the same adjustment flips the conclusion.
8. Frequently Asked Questions (FAQ)
Q1. Is the fee really zero once the three-year penalty period ends?
For most products, yes. The standard clause waives the prepayment fee after three years from drawdown. So if you are around two and a half years in, waiting out the last few months to move at zero cost can beat refinancing immediately, even with a short break-even. The risk is that rates rise while you wait and the gap closes, so waiting is usually only worth it inside a six-month horizon.
Q2. Do partial prepayments trigger the fee too?
Often yes, though most agreements waive it on up to 10% of the original principal per year. Refinancing repays the loan in full, which blows past that allowance, so the fee applies to the whole balance. If you are simply paying down spare cash, splitting it across years within the allowance avoids the fee entirely.
Q3. Where do I find my fee rate and penalty period?
They appear in the loan agreement, or in your bank app's loan detail screen, usually labelled as a prepayment or early-termination charge. Mortgages typically run 1.2% over three years and personal loans 0.7–0.8% over three years, but the terms vary by product and vintage, so always check your own contract. Cost-based pricing has pushed some newer products below these levels.
Q4. Should I ask for a rate reduction before refinancing?
Yes, ask first. If your income rose after a promotion or job change, or your credit score improved, you can request a rate reduction from your current lender — and that path costs zero in fees and zero in closing costs. Only when the request is declined, or the reduction falls short of the gap you were targeting, does the refinancing calculation become worth running.
9. Run Your Own Break-Even With the Prepayment Fee Calculator
Deciding your own case takes exactly two numbers: what the fee would be today, and how many months of saved interest it takes to cover it.
Enter your principal, fee rate, months elapsed, and penalty period into the prepayment fee calculator and it returns the remaining penalty months and the exact fee charged. Use the rate and period from your own agreement and the result will match what the bank quotes you at the counter. Then open the loan repayment calculator and run it twice — once at your current rate, once at the new one. The difference in monthly payment is your monthly saving, and the fee divided by that difference is your break-even in months. If you plan to hold the loan longer than that, refinancing pays.
To see how the repayment structure itself changes the size of those savings, read our comparison of equal-principal and equal-payment schedules. Both calculators run entirely in your browser, and nothing you type is sent to a server.
