Mortgage Prepayment Penalty Cost Calculator
Prepayment penalties on non-QM, jumbo, and some investor loans can cost thousands when you sell or refinance early. Calculate exact cost by penalty type.
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Mortgage prepayment penalties charge a fee when you pay off your loan early — typically through refinancing or selling the home. Federal law (Dodd-Frank) prohibits prepayment penalties on most owner-occupied conventional conforming loans. They remain common on non-QM, jumbo, investor, and commercial loans. Penalty structures vary: 6-month interest, percentage of balance, sliding scale, or interest rate differential.
Common Prepayment Penalty Structures
6 months of interest: Most common non-QM structure. Penalty = balance × rate × 0.5. On a $400K loan at 7.5%, penalty = $15,000. Percentage of balance: Typically 2-5% of remaining balance. Common on investor and DSCR loans. Sliding scale: Often 5/4/3/2/1% by year, dropping each year so the penalty disappears after year 5. Interest rate differential (IRD): Lender recovers the rate spread between your loan rate and current market rate over the remaining term. Rare in the US, common in Canada.
When to Pay the Penalty Anyway
Run the math: monthly savings from refinance × months to next likely refinance vs the penalty cost. Example: refinance saves $400/month, penalty is $15K, you'll likely refinance again in 3 years → 36 months × $400 = $14,400 savings vs $15K penalty. Don't refinance. Refinance saves $400/month and you'll keep the new loan 7 years → 84 months × $400 = $33,600 vs $15K penalty. Refinance saves $18,600 net — worth it. Always check the note for the exact penalty formula and the penalty window (typically 1-5 years from origination). Many penalties expire — wait if you're close to the expiration date.
Last updated May 2026. Sources: CFPB Prepayment Penalties.