Prepayment Penalty

A fee that may be charged to a borrower who pays off a loan before it is due.

If you pay off your mortgage before it is due, you may be charged a fee -- this is referred to as a prepayment penalty.

Any amount that is paid to reduce the principal balance of a loan before the due date -- such as the sale of the property, the owner's decision to pay the loan in full, the owner's decision to pay additional money every month to lower the principle or interest -- is considered prepayment.

You may want to consider discussing the specifics of this fee as you negotiate the terms of your loan with your lender.

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