Prepayment Penalty

A prepayment penalty is a fee charged by a mortgage lender if a loan is paid off before its scheduled maturity date—most commonly triggered when a home is sold or refinanced within the first 1 to 5 years. Under current federal Consumer Financial Protection Bureau (CFPB) regulations, prepayment penalties are prohibited on almost all qualified residential mortgages, including conventional conforming loans, FHA, VA, and USDA loans. They are primarily found in specialized commercial, non-QM, or private investor financing products.