Finance category

Mortgage, loan, investing, tax, and money calculators.

Prepayment Penalty Calculator

Non-QM, DSCR, and commercial loans often carry prepayment penalties. The exact amount depends on the formula — this calculator handles the four most common ones so you can decide whether to pay off or wait.

Penalty type

Current loan balance

Loan rate

Year of loan (for declining)

Penalty % or months

Years remaining on loan

Reinvest rate (for yield maint.)

Prepayment penalty

$11,460

As % of balance

3.00%

How the math works

Prepayment penalties protect lenders when borrowers pay off loans early. Common structures: fixed % of balance, N months' interest, a declining-over-time schedule (5-4-3-2-1%), or yield maintenance which calculates the lender's lost interest vs reinvesting at current rates.

Most residential mortgages since 2014 (Dodd-Frank) don't carry prepayment penalties on QM loans. They're more common on non-QM, commercial, and DSCR loans. Always read the note — the prepayment rider will spell out the formula exactly.

Editorial noteMaintained by EveryCalc - Reviewed June 2026

EveryCalc calculators are designed for fast, practical estimates with transparent inputs and no required account. We use plain formulas, visible assumptions, and related tools so visitors can check the result from more than one angle.

Results are informational only. For financial, tax, legal, medical, construction, or other high-impact decisions, verify the output against primary sources or a qualified professional.

Learn more about our review process on the EveryCalc methodology page.

How this calculator works

What this page estimates

This Prepayment Penalty Calculator is built to give a quick, browser-based estimate for prepayment penalty. Non-QM, DSCR, and commercial loans often carry prepayment penalties. The exact amount depends on the formula — this calculator handles the four most common ones so you can decide whether to pay off or wait. The inputs stay on the page during normal use, and the result should be treated as an estimate for planning, comparison, or education rather than professional advice.

Calculation approach

The calculator applies the standard relationship implied by the inputs, then formats the answer so it can be checked and reused. For finance tools, the most important step is using consistent units, rates, time periods, and assumptions before comparing the result with another calculator or outside quote.

Example workflow

For example, start with a realistic value you already know, change one input at a time, and watch how the answer moves. That makes it easier to tell whether the result is being driven by the main amount, the rate, the time period, or a unit conversion.

Practical checks

Use current, real-world numbers when the result affects money, health, tax, or legal decisions.
Run a low, base, and high case when the inputs are estimates.
Check the related calculators below when the next decision depends on a different assumption.

How to interpret the prepayment penalty result

Best use

Use the result as a planning number for comparing payments, rates, returns, tax reserves, or cash-flow choices before you request a quote or make a commitment.

Cross-check

Compare the answer with the contract, lender estimate, tax form, brokerage statement, payroll record, or invoice that will control the real-world outcome.

Watch for

Do not rely on a single optimistic rate, return, or fee assumption. Money pages work best when you run low, base, and high cases and keep professional advice separate from the estimate.

This page belongs to the Finance calculator library, so the answer should be read in the context of the decision you are modeling rather than as a universal rule.

Before relying on this prepayment penalty estimate

Most calculator mistakes come from the inputs, not the arithmetic. Use this short audit before you reuse the answer in a spreadsheet, quote, application, or important conversation.

Confirm source numbers

Match balances, rates, fees, taxes, income, and payment dates against the lender quote, payroll record, tax form, statement, invoice, or contract.

Separate cash flow from total cost

A lower monthly payment can still cost more over time if fees, interest, taxes, or a longer term are hidden in the structure.

Run conservative cases

Test at least one higher-cost or lower-return case before using the output for a purchase, refinance, investment, loan, or tax decision.

Rerun this page when the rate, price, term, fee, tax rule, income, expense, or expected holding period changes.

How to Use

Pick penalty type from the note.
Enter current loan balance and rate.
For declining, enter which year of the loan you're in.
Enter the penalty factor (% or months) from the note.
For yield maintenance, enter the assumed reinvest rate (usually the US Treasury rate at payoff).

Frequently Asked Questions

Do conventional mortgages have prepayment penalties?

Most 2014-and-later Qualified Mortgages (QM) prohibit prepayment penalties. Non-QM, bank statement, DSCR, hard money, and commercial loans commonly have them. Pre-2014 loans may still be grandfathered.

How does 5-4-3-2-1 declining work?

5% penalty in year 1, 4% in year 2, 3% in year 3, 2% in year 4, 1% in year 5, 0% after. Applied to remaining principal balance at payoff. Common on DSCR loans for non-owner-occupied rentals.

What's yield maintenance?

Most common on commercial loans. Computes the lender's lost interest if they reinvested at current treasuries. Often the harshest structure for borrowers when rates have dropped significantly.

When should I pay the penalty?

Run the math: compare the penalty against interest savings over planned remaining hold. If you'll save more than the penalty in interest, pay it off. Also consider opportunity cost of the funds used.