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A prepayment penalty is a fee charged by a lender
when the borrower repays the loan before the end of its term.
Prepayment penalties exist to compensate the lender for interest
and other charges that would otherwise be lost.
Before you accept a mortgage with a prepayment penalty, find out how long the
penalty is in force and what the penalty is. If the penalty
seems excessive, get a different mortgage. To see how how to evaluate
prepayment penalties, read the
prepayment case study.
Normally, prepayment penalties are only charged during the first
3 to 5 years of the mortgage. And loans with prepayment penalties
usually have lower interest rates than loans without prepayment