What penalty might a lender impose if a borrower repays the mortgage before maturity?

When a borrower repays their mortgage before the maturity date, this is often referred to as paying off the loan early. Lenders may impose a penalty to compensate for the loss of interest income they would have received had the borrower continued making regular payments until the full term of the mortgage was completed.

The three-month interest penalty is a common structure for these early repayment penalties. Under this arrangement, the borrower would have to pay an amount equivalent to three months' worth of interest on the remaining loan balance. This method provides a straightforward way to assess the penalty based on the potential revenue the lender is forgoing due to the early payoff.

Other options, such as a fixed fine penalty or terms like early departure fee and origination fee, do not accurately represent typical practices lenders follow regarding early repayment. A fixed fine is not standard and varies greatly between loans; an early departure fee might not exist under that specific terminology, and an origination fee pertains to the costs involved in processing a new loan rather than penalties associated with early repayment. Thus, the three-month interest penalty is the correct and most relevant consequence for early mortgage repayment.