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.

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.