What is a prepayment penalty?

Tip

If a loan you are considering has a prepayment penalty, make sure to read the fine print carefully. Make sure you understand exactly the circumstances under which you will have to pay, and how much. Ask your lender for a quote for a similar loan without a prepayment penalty so you can compare total costs and make an informed decision.

Typically, a prepayment penalty only applies if you pay off the entire mortgage balance – for example, because you sold your home or are refinancing your mortgage – within a specific number of years (usually three or five years). In some cases, a prepayment penalty could apply if you pay off a large amount of your mortgage all at once. Prepayment penalties do not normally apply if you pay extra principal on your mortgage in small chunks at a time–but it’s always a good idea to double check with the lender.

If you have a problem with your mortgage, you can submit a complaint to the CFPB online or by calling (855) 411-CFPB (2372).

If you’re behind on your mortgage, or having a hard time making payments, you can use the CFPB's "Find a Counselor" tool to get a list of housing counseling agencies in your area that are approved by HUD. You can also call the HOPE™ Hotline, open 24 hours a day, seven days a week, at (888) 995-HOPE (4673).

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