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Prepayment Penalty

Prepayment Penalty

Prepayment penalties only apply to borrowers whose loan contained a prepayment penalty clause and who pay off the loan early. Loans are paid off when the borrower refinances a loan, sells the home, or uses a lump sum. The length of time that the prepayment penalty stays in force is specified in the loan documents. Prepayment penalties are usually limited to the first few years of the loan’s term.


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