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What is a prepayment penalty?

A prepayment penalty is imposed on a borrower for repaying the loan before its due date. It is a provision in some loans required by lenders that charge a fee to a borrower who pays off a loan before it is due.

Mortgages prepayment penalty

In the case of a mortgage, the penalty applies when there is not a prepayment clause in the mortgage note to offset the penalty. The penalty fee is charged to the homeowner who pays one or more monthly payments before the due date.

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