UNDERSTANDING THE PREPAYMENT PENALTY
Loans that have prepayment penalties are not as common as they used to be. However, they still exist. 
Prepayment penalties are specific fees that borrowers agree to pay if they choose to pay off their mortgage early. The prepayment penalty term is often five years. However, some loans may have a longer or shorter prepayment penalty term depending on how long the loan's original term is.
There are two types of prepayment penalties commonly added to loans. The first type is circumstantial. This means that if the borrower sells the home during the period associated with the penalty, the fee may be waived. There may also be other permitted circumstances. The second type of prepayment penalty is absolute. It cannot be waived for any reason.
Most people decide to pay off their mortgage early because they find a better deal or acquire a large sum of money. The most common situation involves the borrower finding a better loan offer from another company. If this is the case, they may obtain a refinancing loan to pay off the original mortgage. However, many people who do this don't take the prepayment penalty into consideration. In some cases, paying the prepayment penalty and obtaining a refinancing loan saves the borrower money. This is usually only true for borrowers who have a an extremely high interest rate on their original mortgage.
Lenders don't assign prepayment penalties to be mean.
From their perspective, they must make money on their loans. They rely on the interest they calculated on the original loan to make that money. Lenders expect the buyer to pay off the loan as agreed. If the loan is paid off early, the lender loses some of the money they expected to make through interest. They implement the prepayment penalty as security to offset that loss.
Mortgage interest rates fluctuate.
When the average interest rate drops, thousands of people try to refinance their homes to save money. Since lenders can't rely on interest rates to remain stable for very long, they must use the prepayment penalty for loans. Prepayment penalties exist on prime and sub-prime loans. When they were added to sub-prime loans in the past, they were used in addition to a high interest rate to give borrowers with poor credit a loan option. The prepayment penalty usually allows borrowers with a prime loan to enjoy a lower interest rate. The best way to know if a mortgage has this penalty is to look on the original loan contract. If the information is difficult to locate, call an experienced agent who will be able to help.