Prepayment Penalties: What You Need To Know
If you're thinking of refinancing your mortgage, you may be wondering if you'll have to pay a prepayment penalty. Prepayment penalties are charged by some lenders if you pay off your loan early. Here's what you need to know about prepayment penalties.
A prepayment penalty is a fee that lenders charge if you pay off your loan early. The fee is typically a percentage of the loan balance, and it can be charged when you refinance, sell your home, or make extra payments on your loan.
Prepayment penalties are designed to discourage borrowers from refinancing their loans or selling their homes before the lender has recouped its costs. For this reason, prepayment penalties are most common on adjustable-rate mortgages and loans with terms of 5 years or less.
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