What is a mortgage prepayment penalty and is it advisable to get a mortgage that has one?
A prepayment penalty on a mortgage allows the lender to charge a borrower additional interest, usually six months worth, when a mortgage is repaid during the penalty period, which is typically somewhere in the first three to five years of the mortgage. If the mortgage does have a prepayment penalty, this is clearly stated in the mortgages disclosers. It will either be stated on the mortgage note or a prepayment penalty rider to the note. The advantage of taking a mortgage with a prepayment penalty is that it could carry a lower rate of interest or you may be permitted to take a mortgage without paying for non-recurring closing costs.
