Early Settlement Fee
An early settlement fee is a penalty charged by lenders when borrowers repay mortgages before maturity, compensating for lost interest income and typically calculated as a percentage of outstanding balance or remaining interest.
| Fee Structures | Common Terms |
| Percentage of balance | 1-3% of outstanding principal |
| Remaining interest | 3-6 months interest typical |
| Declining scale | Reduces over loan term |
| Lock-in period | Fixed period with higher fees |
| Typical Fee Schedule | Example |
| Years 1-2 | 3% of outstanding balance |
| Years 3-4 | 2% of outstanding balance |
| Years 5+ | 1% of outstanding balance |
| Some banks | No fee after 5 years |
| Strategic Considerations | Decision Factor |
| Refinancing benefit | Must exceed penalty cost |
| Asset sale | Fee reduces net proceeds |
| Negotiation | Sometimes waived for retention |
| Fee-free products | Higher initial rates typical |
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