What is the Prepayment Penalty line on a Loan Estimate?

Updated November 2026 · Every dollar figure is an illustrative example, not a quote

The Prepayment Penalty line in the Loan Terms table on page 1 says whether you would owe a fee for paying the loan off early, by selling or refinancing, and most mortgages today answer NO. Where the answer is YES the form must say how much and for how long, and federal rules limit the penalty to the first three years and to 2% of the balance in years one and two and 1% in year three, on the few loan types that may carry one at all.

Where it is on the form

Page 1, the Loan Terms table, as Prepayment Penalty under the question 'Does the loan have these features?' with YES or NO. If YES, the box must describe the maximum amount and the period, for example 'As high as $7,600 if you pay off the loan during the first 2 years.' Balloon Payment is the line beneath it.

Illustrative rangeUsually none; where allowed, at most 2% of the balance in years 1–2 and 1% in year 3, and nothing after

Federal rules allow a prepayment penalty only on certain fixed-rate qualified mortgages that are not higher-priced, and only within those limits; the lender must also have offered you a comparable loan without one. FHA, VA and USDA loans and most conventional loans sold to Fannie Mae and Freddie Mac have none. Some state laws forbid them altogether.

Paid toThe lender, if ever triggered

Can you shop for it?Not a service

Can it change at closing?Not a fee: There is no dollar amount to protect

What the penalty is for, from the lender's side: a loan paid off in year one earns the lender almost nothing after its costs, so some lenders once used penalties to keep borrowers from refinancing the moment rates fell. The 2014 rules made that rare. On the loans where a penalty is still allowed, it is usually paired with a slightly lower rate, and the trade is only worth it if you are certain you will neither sell nor refinance for three years.

What is not a prepayment penalty: paying off a 30-year loan early with extra principal, which any mortgage allows; interest through the payoff date on a payoff statement, which is interest owed and not a penalty; and a reconveyance or release fee of a few dozen dollars at payoff, which is a recording cost. If the line says NO, none of those are a penalty.

Can you shop for it?

Not a service, but a feature to avoid. If a lender's quote carries a prepayment penalty, the lender must have offered you an alternative without one; ask for that quote and compare.

Can it change between the Loan Estimate and closing?

Not a fee at closing. Whether the loan has a penalty is a term of the loan, and a change to it is a change to the loan that requires a revised Loan Estimate. It cannot appear on the Closing Disclosure if the Loan Estimate said NO.

Questions to ask the lender

Does this loan have a prepayment penalty? (Look at the box; then ask anyway.)
If YES: what is the alternative loan without one, and what is its rate?
Can I make extra principal payments without any charge?

Red flags

A YES in the box on a government loan or a plain conforming loan, which should not carry one.
A penalty longer than three years or larger than 2%, which the rules do not allow on a residential mortgage.
A lender that presents a penalty loan without the required alternative.

Questions people ask

Do most mortgages have a prepayment penalty?

No. Since 2014 they are allowed only on certain fixed-rate qualified mortgages, within strict limits, and FHA, VA, USDA and most conventional loans have none. The box on page 1 tells you; most say NO.

Can I pay extra on my mortgage without a penalty?

Yes, on any loan whose box says NO, and extra principal payments are not what a penalty targets even where one exists; penalties apply to paying off the whole loan early, usually through a sale or refinance. Check the note for the exact terms.

Is interest at payoff a prepayment penalty?

No. A payoff statement includes interest through the day the lender receives the money, because mortgage interest is paid in arrears. That is interest you owe, not a penalty. A small release or reconveyance fee is a recording cost, also not a penalty.

Only have one quote? That's the problem.

Tell us the rate and the fees you were quoted. It is free, there is no credit pull, and nobody calls you. We check whether another lender beats it, fees included. Or start with the free Loan Estimate checker, which reads your rate, points and Section A and flags anything out of the ordinary.

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Every dollar figure on this page is illustrative. Fee ranges are general observations, not a survey or a quote, and are not a loan offer, approval, commitment to lend, or Loan Estimate. Your actual rates and fees depend on qualification with lenders, your state and county, and your closing date. The tolerance rules described are the federal TRID rules in general terms; the rule itself and your own Loan Estimate and Closing Disclosure decide how it applies to your loan. comparemyloan does not negotiate with lenders, lock rates, or take loan applications.