What types of prepayment penalties exist?

Hard prepayment penalty: applies to any payoff including refinancing. Soft prepayment penalty: applies only to refinancing, not outright sale. Step-down penalty: decreasing percentage by year (3-2-1% over 3 years).

Are prepayment penalties common on mortgages?

Rare on residential mortgages since Dodd-Frank (2014) restricted them on Qualified Mortgages. More common on commercial loans, some non-QM loans, and hard money loans.

When does paying off despite a penalty make sense?

When the interest saved over the remaining term significantly exceeds the penalty. Calculate: (remaining interest at current loan) - (interest on new financing) - (penalty amount). If positive, pay off.

Loan Prepayment Penalty Calculator

Calculate the prepayment penalty for paying off a loan early and determine if early payoff still saves money after the penalty.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to Use

Enter the values for the scenario you are assessing. Calculate the prepayment penalty for paying off a loan early and determine if early payoff still saves money after the penalty. Use the prepayment penalty result to inform your calculation.

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Frequently Asked Questions

What types of prepayment penalties exist?

Are prepayment penalties common on mortgages?

When does paying off despite a penalty make sense?