How is a prepayment penalty calculated?

Calculate your prepayment penalty using a percentage of interest. Many lenders charge a prepayment fee based on a percentage of interest paid within a certain time period, perhaps six months. Then, multiply this result by 80 percent to find the prepayment penalty.Click to see full answer. In this manner, how are mortgage prepayment penalties calculated?Multiply your principal by the difference (200,000 * 0.02 = 4,000). Divide the number of months remaining in your mortgage by 12 and multiply this by the first figure (if you have 24 months remaining on your mortgage, divide 24 by 12 to get 2). Multiply 4,000 * 2 = $8,000 prepayment penalty.Also Know, how much can a prepayment penalty be? For most home loans issued after January 10, 2014, lenders can only impose prepayment penalties for the first three years of your loan, and the maximum penalty allowed is 2 percent. Regarding this, is a prepayment penalty considered interest? For income tax purposes, the expression “prepayment penalty” means a penalty or bonus paid by a borrower because of the repayment of all or part of the principal amount of a debt obligation before its maturity. If you meet the criteria, the Income Tax Act redefines the penalty and instead deems it to be interest.How can I avoid a prepayment penalty on my mortgage?Some lenders add prepayment penalties into your loan offer. Make sure you ask your lender about these and have them removed if possible. Extra mortgage payments can significantly reduce the amount of interest paid on your loan. See how much you can save by adding a few dollars to your monthly mortgage payments.