What is a prepayment penalty?
A prepayment penalty is a fee that some lenders charge if a borrower pays off their mortgage early, either by paying more than the required monthly amount or by paying off the entire loan before the end of the term. This penalty compensates the lender for the interest they would have earned if the loan had continued as scheduled.
They’re typically outlined in the loan agreement, so it’s essential for borrowers to review these terms. If a loan does have a prepayment penalty, it’s important for homeowners to understand how it might affect them if they choose to refinance, sell, or pay off their mortgage early.
Better Mortgage home loans have no prepayment penalties so you can pay off the balance or refinance at anytime. Get pre-approved in as little as 3 minutes.
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