BEFORE YOU PAY

Mortgage prepayment penalty checklist

A prepayment penalty is a fee some lenders may charge when a loan is paid off early or a large amount is paid ahead. Its applicability depends on the loan documents, loan type, state rules and the particular transaction.

Questions to ask your servicer

Ask whether your loan has a prepayment penalty, whether a partial principal payment triggers it, how the fee is calculated, and when any penalty period ends. Request the answer in writing for a substantial payment.

Compare the net result

Subtract any applicable fee from the estimated interest saving. Also consider whether refinancing, selling or a future cash need changes the decision.