What is a prepayment penalty?

A prepayment penalty is a fee charged by your lender when you pay off your mortgage early. In today’s market, most mortgages do not have prepayment penalty fees, but you should always double check your paperwork to make sure.

Typically, a prepayment penalty only applies if you pay off the entire mortgage balance – for example, because you sold your home or are refinancing your mortgage –  within a specific number of years (usually three or five years). In some cases, a prepayment penalty could apply if you pay off a large amount of your mortgage all at once.  Prepayment penalties do not normally apply if you pay extra principal on your mortgage in small chunks at a time -but it’s always a good idea to double check with the lender.

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