Do US mortgages have prepayment penalties?
Most modern owner-occupied home loans do not. The Dodd-Frank Act and TILA (2014) sharply restricted prepayment penalties on Qualified Mortgages. Penalties are more common on some non-QM loans, investor/commercial loans, and older mortgages. Your Closing Disclosure (page 1) and promissory note state whether a penalty applies.
How is a prepayment penalty calculated in the US?
The most common structure is a percentage of the outstanding balance that steps down over time — for example 3% in year one, 2% in year two, and 1% in year three (a '3/2/1' penalty). Some loans instead charge a fixed number of months of interest. Multiply your balance by the applicable percentage.
What is the difference between a soft and hard prepayment penalty?
A soft prepayment penalty applies only when you refinance the loan, not when you sell the home. A hard prepayment penalty applies to both refinancing and selling. Hard penalties are riskier for borrowers because a life change forcing a sale still triggers the charge.
Can a prepayment penalty be waived?
Sometimes. Penalties often disappear after the initial window (usually three years), so timing a refinance or sale after that date avoids the cost. Some lenders waive the penalty if you refinance with them. Review your note's prepayment rider and ask your closing attorney to confirm the exact payoff amount.