If you have ever heard of the commission or compensation for withdrawal and you are not quite sure what it means, today we will tell you about it in our blog.
Compensation for withdrawal: Definition
Compensation for withdrawal is the amount that the entity charges the client if he/she pays, in whole or in part, the outstanding amount of the loan before the end of the term agreed in the loan deed.
Law 41/2007 changed the name of the concept “ cancellation fee ” to “withdrawal compensation” to more accurately reflect what this figure consists of.
Compensation for withdrawal: Characteristics
The amount that the entity charges the client for this reason is not so much a commission for a service provided to the client, but rather compensation in favor of the entity for the damage caused as a result of the payment of the loan or part of it before the date initially agreed.
Logically, if the loan is cancelled in whole or in part before the initially agreed term, the entity stops receiving interest, and therefore a loss is caused which is what the compensation for withdrawal is intended to cover.
Law 41/2007 imposes limits on entities for the collection of this compensation, which cannot be higher than:
- 0.5% of the amount repaid early, if the withdrawal occurs within the first 5 years of the loan.
- 25% of the amount repaid early, if the withdrawal occurs after 5 years have elapsed since the loan was formalized.
Finally, it is worth noting that some entities such as UCI do not include this fee in their mortgage loans. Therefore, carefully review your mortgage loan contract and make sure you are aware of the clauses it includes.