A cost this site’s refinance and biweekly-mortgage calculators both assume is zero — most residential mortgages today carry none, but some loans, including many commercial ones, do.
How it works
The percentage-of-balance method simply applies a flat rate to the remaining balance. The months-of-interest method instead charges a fixed number of months’ worth of interest on that balance — the two methods can produce very different penalties on the same loan.
What this does not include
Many prepayment penalties step down over time (e.g. 3% year one, 2% year two, 1% year three, then none) — this calculator computes a single flat rate or fixed months figure, not a declining schedule.
How to use this calculator
- Choose the penalty method specified in the loan note.
- Enter the remaining balance and the relevant rate or months figure.
Frequently asked questions
Do most mortgages have prepayment penalties today?
No — they’re uncommon on standard residential mortgages since post-2008 lending reforms, though they remain common on many commercial and some non-qualified mortgage loans.
Which method costs more?
It depends on the specific rate and months specified — there’s no universal answer; this calculator computes both methods so they can be compared directly against the actual loan terms.
Can a prepayment penalty apply to a partial extra payment?
Some loans exempt a certain percentage of extra principal paydown each year before the penalty applies — a detail in the specific note that this calculator’s flat-balance approach doesn’t model.
