What is Prepayment Penalty?
A prepayment penalty is a fee some mortgages charge if you pay off the loan early or make extra principal payments beyond a set limit during a specified period.
A prepayment penalty is a clause in some mortgage contracts that imposes a fee if you pay off the loan before a certain date or exceed a certain amount of extra payments. It is more common on certain non-prime or investor loans, but some conventional loans may have them. Borrowers may encounter a prepayment penalty when refinancing or selling soon after purchase. Watch for the penalty amount, which can be a percentage of the remaining balance or a set number of interest payments, and the penalty period. Ask your lender if your loan has one and negotiate if possible. Prepayment penalties can reduce savings from refinancing.
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