Prepayment penalty - A lenders charge to the borrower for paying off the loan before the end of the term. It is present in some mortgages, preventing borrowers from rapidly refinancing.

Under most circumstances, there will be no pre-payment penalty on conforming, FHA or VA loans.

Some prepayment penalties will only apply if you refinance your home within the prepay period, and not if you sell your home. This is generally referred to as a "soft" prepay.

Hard Prepay penalty pertains to a penalty whether you sell or refinance while the soft pre-pay only pertains to a penalty if you refinance. The soft prepay will not affect you if you sell.

Some states prohibit prepayment penalties.

A penalty may or may not apply to repayment resulting from a home sale. If you are 100% sure that you won't be selling your home soon then it may be a good idea to get mortgage financing that includes a prepayment penaly, especially if the lower interest rate in trade is well worth it.

Most lenders will allow you to buy-out the pre-payment penalty. The charges will vary among lenders.

If you pay off your mortgage before it is due, you may be charged a fee -- this is referred to as a prepayment penalty.

Pre-Payment penalties generally enable lenders to offer borrowers lower interest rates for the life of the loan, so if you are going to be in your house longer than 2 years, a pre-payment penalty can prove to be more benficial than the word "penalty" would indicate, resulting in large savings over the long term, especially on fixed rate loans.

Prepayment penalties on a loan offering can change the rate you pay for your mortgage. Many times you can pay a higher rate to reduce your prepayment penalty with that lender. This is one of many reasons why different mortgage brokers quotes may vary with the same borrower information.

Prepayment Penalty can be used as a tax write-off at the end of your current year. Please advise your tax consultant in regards to laws and guidelines. He/she may help you recoup the costs if you should break the contract between you and your bank.

Paying a prepayment penalty on some types of loans can carry a lower interest rate than not having one. If you feel certain that you will be remaining in the home for a period that exceeds the length of the penalty it may be a wise decision to go with the lower rate.

Many of today’s loans come with prepayment penalties. Typically, a prepayment penalty is charged if the borrower repays the loan within the first 2-3 years. This payment is usually equal to six months interest. If you are just a few months out from the expiration of your penalty period, you may want to wait it out before refinancing. However, even with a penalty the long term savings of locking in a lower fixed rate today could more than cover the penalty.

Depending on the state you live in and whether your loan was originated as a purchase transaction or a refinance, some states do not allow Pre-Payment Penalties (PPP) imposed on pre-paying a loan that was originated as a purchase. Others have laws that limit the number of years in a Pre Payment period for different transaction types.

Most banks allow you to pre-pay up to 20% of the outstanding balance per year without subjecting you to a PPP.

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