What is Prepayment Penalty?
A prepayment penalty is a fee some loans charge if you pay the mortgage off early, such as by selling or refinancing within a certain window. Most standard owner-occupied loans today do not have them, but some specialty or investor loans do. Always check before signing if you might sell or refinance soon.
Example: An investor’s loan includes a prepayment penalty for the first three years, so refinancing in year two would trigger an extra charge.