Can I be charged a penalty for paying off my mortgage early?

Q: Can I be charged a penalty for paying off my mortgage early?

A prepayment penalty is possible; it depends on the loan type and the written terms. Some loans charge one during the first years, including some adjustable-rate mortgages and some fixed-rate loans. Many states limit the amount or duration, and whether your loan has a penalty must have been disclosed in the loan documents.

Short answer

A penalty is possible; it depends on the loan type and the written terms. Some loans charge one during the first years, including some adjustable-rate mortgages and some fixed-rate loans. Many states limit the amount or duration, and whether your loan has a penalty must have been disclosed in the loan documents.

Full explanation

Paying a mortgage off early — including through a refinance or a sale — can trigger a fee if the contract allows it. The CFPB says the answer turns on the kind of mortgage you have and the specific terms. It is not correct to say these penalties never exist.

When a penalty applies, it is often limited to the early years of the loan. The CFPB notes that the cost can be substantial for an adjustable-rate borrower who wants to refinance before the rate rises. Some fixed-rate loans also include a penalty. Many states limit how large the fee can be or how long it can last.

Look in the Note and in any document titled as an addendum, including an Addendum to the Note. State law can change what a lender may charge. This page does not decide whether a particular penalty in a contract is allowed.

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