ABA Family Legal Guide

Buying and Selling a Home

Financing a Home Purchase

Key Provisions of the Loan Documents

What is a prepayment penalty?

Although it is illegal or limited in some states, home loans may include a prepayment penalty. This is a charge imposed if the borrower pays off the loan ahead of schedule. This penalty is usually 1 or 2 percent of the loan. It is possible that a home loan will include a prepayment penalty for only the first few years.