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What a Mortgage Prepayment Penalty Is and Who Has to Pay

Prepayment penalties are fees some lenders charge borrowers who pay off their loans early, refinance, or pay a substantial portion. In 2014, prepayment penalties became restricted from residential loans on owner-occupied property, with some exceptions. Prepayment penalties are sometimes charged as a percent of the loan balance starting at 3% and declining over three years.

What Is a Prepayment Penalty?

Prepayment penalties are charged on some mortgages to protect loan investors from lost interest payments if buyers pay the mortgage off early.

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