Part of What it is
A prepayment penalty is a fee some lenders charge if you pay off all or part of your mortgage early, the CFPB explains. You would have agreed to it when you closed on your home.
Which loans may have one
Regulation Z allows a penalty on a covered transaction only if it is otherwise permitted by law and the loan has an annual percentage rate that cannot increase after consummation, is a qualified mortgage, and is not a higher-priced mortgage loan.
How long
The penalty must not apply after the three-year period following consummation.
How much
It must not exceed 2 percent of the outstanding balance prepaid during the first two years, and 1 percent during the third year. A loan can have a shorter period or a lower amount.
Where to look
The Loan Estimate has a line labeled «Prepayment Penalty» that states whether the loan includes one. The CFPB's own sample Loan Estimate for a fixed-rate loan includes a penalty in the first two years, which shows what the line looks like.
In the calculator
Enter the percentage and the months left in the penalty period. The cost appears next to the interest difference.