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What is a pre-payment penalty and how do I know I have one on my loan?
A prepayment penalty is an interest charge due from
the borrower when the loan is paid off prior to the expiration of a time
period defined in the loan contract or note. Pre-payment penalties are
becoming more common as lenders offer discounted interest rates to
borrowers in exchange for a more certain yield on the loan over the
specified time period.
