A prepayment penalty is a fee your lender charges if you pay off your mortgage early. Most loans originated after 2014 do not have them — the Dodd-Frank Act restricted their use on qualified mortgages. Still, some non-QM loans, jumbo loans, and older mortgages include them.
What is a mortgage prepayment penalty?
It is a fee — usually 1–3% of the remaining balance, or six months of interest — triggered when you pay off the loan within a certain window (typically 3–5 years from origination).
How do I find out if my loan has one?
Check your closing disclosure (page 1, "Loan Terms" section). It is also disclosed in your promissory note. If unclear, call your servicer.
What types of loans commonly have penalties?
Non-QM loans, some bank statement loans for self-employed borrowers, and some private/portfolio loans.
What should I do if I find one?
Run the math: a 2% penalty on a $250,000 balance is $5,000. If you save $40,000 in interest by paying off, the penalty is still a no-brainer. Use our Extra Payment Calculator to model.