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.