A prepayment penalty on your present mortgage could be the greatest deterrent to refinancing. The practice of charging money for an early pay-off of the existing mortgage loan varies by state, type of lender, and type of loan. Prepayment penalties are forbidden on various loans including loans from federally chartered credit unions, FHA and VA loans, and some other
home-purchase loans.
The mortgage documents for your existing loan will state if there is a penalty
for prepayment. In some loans, you may be charged interest for the full month in
which you prepay your loan.
