Rates & Loans
What is a prepayment penalty on a mortgage?
Updated Jul 1, 2026
The short answer
A prepayment penalty is a fee some loans charge if you pay off or heavily pay down your mortgage early, such as by refinancing or selling within a set number of years. Many common mortgages today do not carry them, and federal rules restrict them on certain loan types, but they still exist — so check your Loan Estimate and note, where any penalty must be disclosed.
Key points
- A fee for paying off the loan early in some cases.
- Restricted on many loan types by federal rule.
- Must be disclosed on your Loan Estimate and note.
- Matters most if you may refinance or sell soon.
Where to check
Page 1 of the Loan Estimate has a yes/no "prepayment penalty" feature line. If it says yes, ask for the exact terms before proceeding, especially if you might not keep the loan for its full term.
Sources
Every claim above traces to a public government source.