Prepayment Penalty Calculator
Calculate prepayment penalties for mortgages and loans. Compare penalty types including percentage, months interest, and declining scale structures.
How it works
Prepayment penalties are calculated using different methods depending on your loan terms. Percentage-based penalties charge a fixed rate of your outstanding balance, while months-interest penalties charge several months of interest payments. Declining penalties decrease over time as you hold the loan longer.
Example
$400,000 loan balance with 3% penalty = $12,000 prepayment penalty. 6 months interest at 5.5% rate = $11,000 penalty.
FAQ
What is a prepayment penalty?
A prepayment penalty is a fee charged by lenders when borrowers pay off their mortgage early, either through refinancing or paying the full balance before the loan term ends.
How are prepayment penalties calculated?
Common methods include a percentage of the outstanding balance (typically 1-5%), a fixed number of months' interest payments, or a declining scale based on how long you've had the loan.
Do all mortgages have prepayment penalties?
No. FHA, VA, and most conventional residential mortgages don't have prepayment penalties. They're more common with commercial loans, jumbo loans, and some portfolio loans.
When do prepayment penalties apply?
Penalties typically apply when you pay off more than 20% of your original loan balance in a single year during the penalty period, usually the first 2-5 years of the loan.
Can I avoid prepayment penalties?
Some loans allow partial prepayments up to 20% annually without penalty. Others may waive penalties for specific circumstances like sale, assumption, or hardship situations.