Prepayment Penalty

The article may contain affiliate links from partners. The words, opinions, and reviews are our own. Learn how we make money to support our financial wellness mission.

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.

Main Menu