Financing
Prepayment penalty
A prepayment penalty is a fee that may be charged under some loan terms when the borrower pays all or part of the loan earlier than the contract permits without the fee.
Glossary
Financing
What is a mortgage prepayment penalty?
Primary references on this page:
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CFPB: Can I Be Charged for Paying Off a Mortgage Early?There is no safe universal yes-or-no answer from the term alone. The CFPB directs borrowers to review the note and any addendum because the result depends on the loan terms, loan type, applicable law, timing, and amount prepaid. The Loan Estimate and Closing Disclosure include a prepayment-penalty field for covered mortgages.
How prepayment penalty works
Check the prepayment field, note, riders, and payoff statement. Identify the penalty window, triggering event, calculation base, partial-payment allowance, sale or refinance treatment, and expiration date. Request a written payoff amount for the intended date rather than estimating the charge from memory.
Worked example
If a contract imposes a stated charge only when the loan is fully paid during the first 24 months, a month-25 payoff may be treated differently. That is an illustration, not a universal rule; the signed documents and current law control.
Common mistakes and review checks
Treat the result or document as one input to a decision. Verify the current source document, definitions, dates, and transaction facts before relying on it.
This is general educational information, not legal or tax advice. Rules vary by state and locality and change over time — check your local law and confirm specifics with a qualified professional.