General Mortgage KnowledgeQuestion 147 of 400
A prepayment penalty is a fee charged when a borrower:
a.Misses a payment
b.Requests an escrow waiver
c.Pays the loan off or pays down a large amount early
d.Refinances into an FHA loan
Explanation
A prepayment penalty applies when the borrower pays off or substantially pays down the loan ahead of schedule, compensating the lender for lost interest. It is not a late fee, escrow item, or refinance requirement.
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