Loan Details
Penalty Terms
Calculation Results
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Prepayment Impact
About Prepayment Penalties
Prepayment penalties are fees charged by lenders when borrowers pay off a loan before its scheduled maturity date. These penalties compensate lenders for the interest income they lose when a loan is paid off early.
There are two main types of prepayment penalties:
Percentage of Balance
A percentage of the remaining loan balance (e.g., 2% of $200,000 = $4,000 penalty)
Months of Interest
A certain number of months' worth of interest (e.g., 6 months of interest on the remaining balance)
Important Considerations
- Prepayment penalties typically only apply during the first 3-5 years of a loan
- Federal regulations limit prepayment penalties on certain mortgage types
- Some states have additional restrictions on prepayment penalties
- Always review your loan documents carefully before making extra payments
Frequently Asked Questions
What is a prepayment penalty?
A prepayment penalty is a fee that some lenders charge if you pay off all or part of your mortgage loan early. The penalty compensates the lender for interest and other charges they lose when a loan is paid off before its maturity date.
Are prepayment penalties legal?
Prepayment penalties are legal in most states, but with restrictions. Federal regulations prohibit prepayment penalties for certain types of mortgages, and many states have additional limitations on when and how they can be applied.
How can I avoid prepayment penalties?
To avoid prepayment penalties: 1) Choose a loan without a prepayment penalty clause, 2) Make payments within the allowed limits (many loans allow up to 20% extra per year), 3) Wait until the penalty period expires (usually 3-5 years), or 4) Refinance with a different lender.
Do all loans have prepayment penalties?
No, not all loans have prepayment penalties. Many conventional loans and government-backed loans (FHA, VA, USDA) do not have prepayment penalties. Always review your loan documents to understand the terms of your specific loan.
Is this calculator accurate for my specific loan?
While this calculator provides a good estimate, your actual prepayment penalty may vary based on your specific loan terms. Always consult your loan documents or lender for precise information about your prepayment penalty.