Prepayment Penalty Clause: What is it? Real estate license exam questions.





Today we are talking about the prepayment penalty clause. A prepayment penalty clause states that a lender can penalize a borrower if the borrower pays off the mortgage much sooner than usual.

Yes you heard that right, if a mortgage has a prepayment penalty clause paying off a loan faster than usual can actually create a fee for the borrower. The fee occurs if a borrower pays off their loan before a specific period (typically within the first five years).

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