What is a No Prepayment Penalty mortgage program?


Some lenders advertise their mortgage loans with different prepay penalty option. The No Prepayment Penalty is one of the plans that could be offered to you. Other common plans are 1-, 2-, 3-, and 5-year Prepayment Penalty mortgage plans.

What is best - a No Prepayment Penalty plan or accepting a Soft one?

A hard prepayment penalty would limit your right as a homeowner to sell your house whenever you want. Unless you are definitely certain that is not going to happen for the duration of the penalty period, a homeowner is advised not to accept a hard prepay penalty. This type of penalty applies to refinances, too.

How about a Soft vs. No Prepayment Penalty plan?

If you are getting a straight Soft Prepayment Penalty disclosure options, this is good for you. It means the lender is being honest, or at least more direct or open with you then other lenders would be. Also, this could mean you could negotiate penalty period and rates. Not always, though.

Soft prepayment penalties for the initial 1 to 5 years of the loan usually allow

  • sale of house;
  • 20% of the original loan amount to be prepaid during any year of the loan without incurring any charge.

Exceeding prepaid amounts and/or refinance would trigger penalty provisions - usually expressed as several months interest.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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