.png)
What is a mortgage prepayment penalty?
A mortgage prepayment penalty is a charge that may apply when a borrower pays off all or part of a loan earlier than the loan terms allow without a fee, whether through a sale, refinance or large principal payment. Whether a loan has one, and its structure and length, depend on the loan terms and applicable rules.
Prepayment penalties show up most often on investment-property and business-purpose loans such as DSCR loans. They can be structured several ways, including a fixed percentage of the balance, a declining (step-down) schedule or a set amount of interest.
For consumer mortgages, federal rules restrict prepayment penalties, and many loans carry none. On investor loans, choosing a shorter or no-penalty option usually affects pricing.
The formula
=
