Last reviewed: 6 October 2026
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Mortgage prepayment penalties and payoff statements, explained
A prepayment penalty is a charge for paying a mortgage off early. This page sets out what the CFPB and Regulation Z say about when one is allowed, where to find it in your papers, and how to ask for a payoff statement.
What this term means: Regulation Z defines a prepayment penalty for a closed-end loan as “a charge imposed for paying all or part of the transaction’s principal before the date on which the principal is due,” other than a waived, bona fide third-party charge imposed if the consumer prepays all of the principal sooner than 36 months after consummation.[4] The CFPB says your payoff amount is what you must pay to satisfy the loan completely, and that it is different from your current balance.[2]
Where a penalty shows up in your documents
- The CFPB says whether your loan carries a prepayment penalty must have been disclosed in your loan documents, and that sometimes it is disclosed only in the “Addendum to the Note,” so look at the Note and anything with “Addendum” in the title.[1]
- The Loan Estimate must state whether the loan includes a prepayment penalty, using the label “Prepayment Penalty.” If the answer is yes, it must also give the maximum amount of the penalty and the date the period during which it can be imposed ends.[6] Our guide to reading your Loan Estimate shows where the “Does the loan have these features?” question sits.
- The CFPB also says many states have laws that limit the amount or duration of these penalties.[1] This page does not cover any state’s rule.
What Regulation Z limits
The federal limits are in 12 CFR § 1026.43(g), part of the ability-to-repay rule. “Covered transaction” there means a consumer credit transaction secured by a dwelling, other than the exempt transactions listed in paragraph (a).[3]
| Question | What § 1026.43(g) says |
|---|---|
| When may a covered loan include a penalty? | Only if the penalty is otherwise permitted by law, and the loan has an annual percentage rate that cannot increase after consummation, is a qualified mortgage under the listed paragraphs, and is not a higher-priced mortgage loan.[3] |
| For how long? | A penalty “must not apply after the three-year period following consummation.”[3] |
| How large? | No more than 2 percent of the outstanding loan balance prepaid if incurred in the first two years after consummation, and no more than 1 percent if incurred in the third year.[3] |
| Must a no-penalty offer exist? | A creditor must not offer a covered loan with a prepayment penalty unless it also offers an alternative without one that has an annual percentage rate that cannot increase and the same type of interest rate (fixed or step-rate), the same loan term and other listed features, and that the creditor believes in good faith the consumer likely qualifies for.[3] |
| What if a mortgage broker is involved? | The creditor must present the broker with a no-penalty alternative and establish by agreement that the broker must present one to the consumer.[3] |
| When does the rule apply? | Only if the loan is consummated with a prepayment penalty. It is not violated if a loan closes without one or if no loan is made.[3] |
A separate rule bars prepayment penalties on high-cost mortgages; see our guide to HOEPA and the high-cost mortgage triggers.
Getting a payoff statement
- The CFPB says your payoff amount includes interest due through the day you intend to pay off the loan and may include other unpaid fees. If you are paying off early, it may also include a prepayment penalty.[2]
- Under § 1026.36(c)(3), for a consumer credit transaction secured by a dwelling, the creditor, assignee or servicer must provide “an accurate statement of the total outstanding balance that would be required to pay the consumer’s obligation in full as of a specified date.”[5]
- It must be sent within a reasonable time and in no case more than seven business days after a written request from you or someone acting for you.[5]
- If the servicer is not able to provide the statement within seven business days because the loan is in bankruptcy or foreclosure, because it is a reverse mortgage or shared appreciation mortgage, or because of natural disasters or other similar circumstances, the statement must instead be provided within a reasonable time.[5]
- A creditor or assignee that does not currently own the loan or the servicing rights is not subject to the payoff-statement requirement.[5]
After you pay off the loan
If a paid-off mortgage still shows as outstanding on your credit report, the CFPB says to file a dispute with the credit bureaus about the error. It also says you can file a complaint with the CFPB online, or call (855) 411-CFPB (2372) to file a complaint and be connected to a HUD-approved housing counselor.[7]
How to verify this yourself
Read § 1026.43(g), § 1026.32(b)(6), § 1026.37(b) and § 1026.36(c)(3) in the eCFR (references 3 to 6) and the CFPB pages (references 1, 2 and 7). For your own loan, the Note and any Addendum to the Note are the source for whether a penalty applies. To check the person you are working with, use our guide to verifying a loan officer’s NMLS license. Our published standard covers how we check loan originators, and the Register shows that method; neither reviews a lender’s or servicer’s handling of your loan.
What this page does not cover
This page is general information, not legal advice. It does not calculate any penalty, discuss whether to pay off a loan early, or cover state limits on penalties, which vary. The CFPB prepayment page was last reviewed 11 September 2024 and the payoff page 28 August 2026. This page was last reviewed 6 October 2026.
Your next step
Find the prepayment-penalty line on your Loan Estimate and the Note, and if you plan to pay off the loan, send your servicer a written request for a payoff statement as of a specific date. Then return to the Mortgage help library for related guides.