A Mortgage PrePayment Penalty?

Will an early pay-off of your mortgage result in a financial penalty?

The quick answer is, not in most cases.

One question that I frequently hear from my clients is “Will my mortgage have a prepayment penalty?”. This is a legitimate concern for 99% of my customers. The average time that a borrower keeps a mortgage is now 6 years, and the average mortgage product is a 30 year mortgage. As you can see, very few people keep a mortgage to full term and will end up paying it off early.

Thankfully, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2008 outlawed most prepayment penalties, with some exceptions. The exception rules are very complicated and if you would like to read the legalese describing that rule, you can check out this post, or call me for more details.

In most cases, however, there are no prepayment penalties on traditional mortgages. You will not find them on any FHA, VA, USDA or Conventional mortgage that BrandMortgage and most other lenders originate.

There are a few non-traditional mortgage lenders that we work with who may have prepayment penalties. Those mortgage loans are typically only made on investment/rental properties. These types of loan programs are very specialized to meet a very narrow band of customer demand, so the terms of those types of mortgages are not as attractive as those of a traditional mortgage. But, when there is a market demand, a capitalistic market tends to find a way to meet the demand.

The best thing to remember is to always work with a licensed and experienced mortgage lender who can give you sound advice, and guide you through the process of selecting the correct loan program for you and your specific needs.