A fee a lender charges a borrower for paying off a loan early or refinancing. The pre-payment penalty amount is usually based on the remaining mortgage principal balance or a certain number of months worth of interest. When a borrower applies for a loan, the Loan Estimate provided by the lender will indicate whether the borrower will be subject to a pre-payment penalty. Pre-payment penalties can substantially increase the cost of refinancing. Buyer’s should be aware of the risks and costs associated with pre-payment penalties before selecting a loan with such a penalty.
