You may plan on keeping the house for the entire duration of the prepayment penalty, and be tempted not to worry about it much. But sometimes life circumstances change, so it`s wise to avoid any type of prepayment penalty if you can. A typical prepayment penalty might equal five months worth of monthly loan payments, so it`s worth checking on. Of course, you should always ask (before you sign) if a new loan has a prepayment penalty. In fact, ask the lending officer to point out to you in the document where a prepayment penalty is discussed.

Most items in a loan are subject to negotiation. If you haven`t signed loan papers yet, and you find that your loan has a prepayment penalty, you might offer to pay an additional closing point or so to see if it can be removed. The key at this stage is that if you agree to the prepayment penalty, you should try to find ways to reduce either the amount, the term, or both as much as possible.

If you already have a loan, you are bound by the terms of the document, unless you can negotiate them. There are perfectly legitimate reasons why you may want to pay off a note early - most often, due either to refinancing or selling the house. You may be able to contact your lender to see if they will waive the prepayment penalty if they are able to provide refinancing. If interest rates have dropped a lot, and you can`t get out of the prepayment penalty, it may be worth rolling that amount into a new loan. And of course, try to get the new loan without a prepayment penalty.