- 1). Search through your closing documents. You are looking specifically for your loan agreement (full breakdown of terms, fees and rate) and your prepayment penalty rider. Also, take out anything where a prepayment penalty is mentioned. Sometimes the wording can be complex and confusing, and you'll want to have all relevant documents in front of you.
- 2). Determine the type of prepayment penalty you have. Usually, the penalties are one of two varieties: a fixed penalty that expires after a period of time has elapsed or a structured penalty that is based on the time you've kept your mortgage. If your penalty is a fixed value, and you're within the expiration period, the dollar amount listed is what you'll be charged to pay off your loan early.
- 3). Calculate your structured penalty. Sometimes, the dollar value will be listed in the paperwork. For example, if you pay off the loan in one year, the penalty is $6,000, if you pay off the loan in two years the penalty is $4,500, and so on. Other times, the payoff penalty is a percentage of the outstanding loan balance -- 3 percent of the mortgage balance after one year, 2 percent after two years and so on. For example, for a first mortgage with a balance of $243,500 and a 2 percent prepayment penalty, the dollar amount you'd need to pay in addition to the balance is $4,870.
- 4). Use your loan statement to get the most updated figure for your calculations. Use the mortgage balance on your most recent statement to calculate a percentage penalty if you have one.
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