Mortgage Penalty Calculator
Calculate prepayment penalties and charges for paying off your mortgage early
Mortgage Details
Type of mortgage loan
Full or partial mortgage payoff
Current remaining mortgage balance
Your current mortgage interest rate
Current posted rate for similar term
Months left in current mortgage term
Any discount received on your rate
Penalty Calculation
Enter your mortgage details to calculate the prepayment penalty
💡 How Penalties Are Calculated
For fixed-rate mortgages, you pay the higher of: 3 months interest OR Interest Rate Differential (IRD).
No IRD penalty applies since your current rate is not higher than the posted rate.
Example Scenario
Fixed-Rate Mortgage Example
Outstanding Balance: $150,000
Current Rate: 5.5%
Posted Rate: 4.4%
Months Remaining: 26
Penalty Calculation
3-Month Interest: $150,000 × (5.5% ÷ 4) = $2,062.50
IRD: $150,000 × (1.1% ÷ 12) × 26 = $3,575.00
Final Penalty: $3,575.00 (higher amount)
Types of Prepayment Penalties
Soft Penalty
Allows home sale without penalty
Penalty applies only to refinancing
Hard Penalty
No exceptions without penalty
Applies to both sale and refinancing
How to Reduce Penalties
Use your annual prepayment privilege first
Choose an open mortgage if planning to prepay
Make more frequent payments instead
Port your mortgage to a new property
Wait until penalty period expires
Understanding Mortgage Prepayment Penalties
What Are Prepayment Penalties?
Prepayment penalties are fees charged by lenders when borrowers pay off their mortgage faster than originally agreed. These penalties compensate lenders for lost interest income and help maintain the profitability of mortgage-backed securities.
When Do They Apply?
- •Paying off mortgage early (full prepayment)
- •Making extra payments beyond allowed privileges
- •Refinancing to a different lender
- •Selling property (for hard penalties)
Calculation Methods
Variable Rate Mortgages:
Penalty = Amount × (Rate ÷ 100) ÷ 4
Fixed Rate Mortgages:
3-Month: Amount × (Rate ÷ 100) ÷ 4
IRD: Amount × ((Current Rate - Posted Rate) ÷ 100 ÷ 12) × Months
Important: For fixed-rate mortgages, you pay the higher of the 3-month interest or IRD penalty.
Legal Protections (US)
CFPB Rules:
- • Penalties limited to first 3 years
- • Max 2% of balance (years 1-2)
- • Max 1% of balance (year 3)
- • Full disclosure required
Lender Requirements:
- • Must offer penalty-free alternative
- • Only for qualified mortgages
- • Cannot increase after signing
- • Not for high-priced loans