Mortgage calculator Reviewing the topic
The penalty is designed to prevent the mortgage holder from closing the loan too early for the bank to make a decent profit. Most mortgages have a penalty of this type, but it rarely poses a problem. For instance, when the penalty period is one year on a twenty year loan, it is exceedingly unlikely that the mortgage holder will be able to get mortgage refinancing or to pay off the loan out of pocket within the penalty period. However, a longer penalty period can be troublesome, and can effectively prevent a homeowner from getting mortgage refinancing during a period of exceptionally low interest rates. Because paying off the mortgage within the penalty period can be pricey, there may be no savings in taking out a new mortgage.