Enter your total remaining principal mortgage amount, the number of months remaining, and interest rate into the calculator to determine the prepayment penalty amount.
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Prepayment Penalty Formula
The following equation can be used to calculate the prepayment penalty on a mortgage.
PP = M * I /12 * N
- Where PP is the prepayment amount
- M is the total principal remaining
- I is the interest rate (%) (most often this prepayment interest is less than the interest of the mortgage)
- N is the number of months remaining on the mortgage
Prepayment Penalty Definition
A prepayment penalty is defined as the penalty paid on the early payoff of a loan or mortgage.
Prepayment Penalty Example
How to calculate a prepayment penalty?
- First, determine the total principal remaining.
Determine the total amount remaining not including interest.
- Next, determine the prepayment rate.
Determine the prepayment interest rate.
- Next, determine the number of months remaining.
Calculate the months remaining on the loan.
- Finally, calculate the prepayment penalty.
Calculate the total penalty using the formula above.
A prepayment penalty is a fee that must be paid when paying off a mortgage early. The reason for the penalty is that the banks depends on the interest rate being paid to make money. If someone tries to pay off principal early, the bank would lose all of that interest if not for the penalty.
A prepayment penalty is calculated using the principal amount, prepayment interest rate, and number of months remaining.
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