Some mortgage loans have prepayment penalties for the first few years, although many state laws limit the severity of any penalties, explains the Consumer Financial Protection Bureau. Loan documents must disclose whether a loan has a prepayment penalty, possibly in a section called "Addendum to the Note."
A consumer should also look at any section in loan documents that has "Addendum" in the heading, says the bureau. While prepayment penalties come into play with some adjustable-rate mortgages because homeowners want to refinance before their rates increase, fixed-rate mortgages can also carry the penalties. If a consumer is considering paying off a loan early, she should ask the lender for the payoff amount as it does not always equal the balance due.