Mortgage Penalty Calculator
Calculate prepayment penalties for paying off your mortgage early. Determine if refinancing or selling makes financial sense despite penalty costs.
Prepayment Penalty
Penalty Analysis
Recommendation
Types of Prepayment Penalties
Interest Rate Differential
Penalty equals the difference between your current rate and current market rates, multiplied by the remaining balance.
Common in Canada and some US states
Percentage of Loan Balance
Penalty is a percentage of the remaining loan balance. Often 2-3% in the first few years.
Most common type in the US
Fixed Amount
Penalty is a predetermined dollar amount, regardless of loan balance or timing.
Less common, but straightforward
Stepped Penalty
Penalty decreases over time (e.g., 4% first year, 3% second year, 2% third year).
Fairer for borrowers, common in some states
Understanding Prepayment Penalties
Prepayment penalties are fees charged by lenders when you pay off your mortgage early. These penalties are designed to compensate lenders for interest income they lose when borrowers pay off loans ahead of schedule.
When Do Penalties Apply?
- Paying off the entire loan: Selling your home or refinancing
- Large principal payments: Some loans penalize payments over a certain amount
- Converting to different loan types: Changing from ARM to fixed-rate
- During penalty period: Usually first 1-5 years of the loan
State-by-State Variations
Prepayment penalty laws vary significantly by state. Some states prohibit them entirely, while others have strict regulations on how they're calculated and when they can be charged.
Avoiding Prepayment Penalties
- Choose no-penalty loans: Many lenders offer penalty-free mortgages
- Wait out the penalty period: Most penalties expire after 3-5 years
- Shop for penalty-free refinancing: Refinance to a no-penalty loan
- Check your loan documents: Always review penalty terms before signing
Calculating if It's Worth Paying the Penalty
Compare the penalty cost with the savings from paying off the loan early or refinancing to a lower rate. Calculate the break-even point to determine how long you'd need to keep the new loan to recover the penalty cost.
Legal Considerations
- Federal loans: FHA, VA, and USDA loans generally don't have prepayment penalties
- State laws: Some states cap penalty amounts or prohibit them entirely
- Contract terms: Always check your specific loan agreement
- Hardship exceptions: Some lenders waive penalties in cases of financial hardship
Important: Prepayment penalties can be expensive, but they're not always prohibitive. Use this calculator to determine if paying off your loan early or refinancing makes financial sense despite the penalty. Always consult your loan documents and consider speaking with a financial advisor.