Top mortgage lenders in 2025, like Better Mortgage and Bank of America, are increasingly forgoing prepayment penalties, offering borrowers greater financial flexibility. To choose a penalty-free mortgage and avoid hidden fees, carefully review the Loan Estimate and Closing Disclosure, and directly inquire about prepayment penalties and other potential charges. This allows for easier refinancing, selling, and faster loan payoff without incurring extra costs.
Whether you’re a first-time homebuyer, an experienced investor, or a real estate professional advising clients, this guide will walk you through:
- What a prepayment penalty is and how it works
- Why it matters in today’s market
- The top mortgage lenders in 2025 that don’t charge these penalties
- Real-world comparisons to help you visualize potential savings
- How to vet lenders for hidden fees
Let’s start by unpacking what a prepayment penalty really means—and why you should care.
What Is a Prepayment Penalty?
A prepayment penalty is a fee that some mortgage lenders charge if you:
- Pay off your loan early (before a specified period)
- Refinance your mortgage with another lender
- Make large extra payments toward the principal
Typically, these penalties are charged during the first 3 to 5 years of a loan. They are calculated as a percentage of the remaining balance or a specific number of months’ worth of interest.
Example:
- You take out a $300,000 loan.
- You decide to sell or refinance after 2 years.
- Your lender charges a 2% prepayment penalty.
- Your penalty = $6,000.
That’s a hefty price to pay for being financially responsible or trying to secure a better interest rate.
Why Avoid Prepayment Penalties in 2025?
With interest rates still fluctuating and housing markets in transition, flexibility is more important than ever. Homebuyers are refinancing more frequently, selling earlier, and making extra principal payments to build equity faster.
Here’s why choosing a lender without prepayment penalties makes sense:
- Refinance without fear: Lock into a lower rate when it becomes available.
- Sell freely: Life happens—jobs change, families grow. Don’t pay extra for moving.
- Pay down your loan faster: Shave off years of interest without triggering a fee.
- Invest smart: If you’re an investor, flexibility means a better return on capital.
Below is a curated list of trusted mortgage lenders that do not charge prepayment penalties, based on current offerings in 2025. These lenders serve a wide range of borrowers and offer diverse mortgage products.
1. Better Mortgage
Best for: Tech-savvy borrowers who prefer a fully digital experience
Why it stands out:
- No lender fees
- Transparent pricing
- Fast pre-approvals and closing timelines
Noteworthy Features:
- No prepayment penalties on any loan products
- Easy rate comparisons online
- Available in most U.S. states
2. Bank of America
Best for: Buyers looking for robust assistance programs and national presence
Why it stands out:
- Extensive branch network
- Down payment and closing cost assistance for first-time buyers
- Affordable loan options including FHA and conventional loan
Noteworthy Features:
- No prepayment penalties
- Option to combine mortgage with Preferred Rewards for benefits
- HELOC and home equity loans also penalty-free
Bottom line: A reliable choice for buyers seeking both digital and in-person support, especially first-time homeowners.
3. Navy Federal Credit Union
Best for: Military members, veterans, and their families
Why it stands out:
- Exclusive to military-affiliated individuals
- Personalized service and excellent member benefits
- Low- or no-down-payment options
Noteworthy Features:
- No prepayment penalties
- Offers VA, conventional, and Homebuyers Choice loans
- Competitive interest rates and closing cost assistance
4. Truist Bank
Best for: Southeast and Mid-Atlantic borrowers seeking variety and flexibility
Why it stands out:
- Conventional, FHA, VA, and jumbo loan options
- Regional bank with personalized services
Noteworthy Features:
- No origination or prepayment penalties
- First-time buyer assistance programs available
- In-branch support for those preferring in-person transactions
5. Discover Home Loans
Best for: Homeowners seeking home equity loans without extra costs
Why it stands out:
- Fixed-rate home equity loans with no hidden charges
- Straightforward lending terms
Noteworthy Features:
- No application, origination, or prepayment penalties
- Loan amounts between $35,000 and $300,000
- Fully online application process
6. Veterans United Home Loans
Best for: Eligible veterans and service members using VA loans
Why it stands out:
- Specializes exclusively in VA loans
- Excellent reputation for customer service and education
Noteworthy Features:
- No prepayment penalties
- No private mortgage insurance (PMI)
- Assistance for first-time veteran buyers
Comparing Prepayment Penalties: With vs. Without
Let’s say you’re a homeowner with a $350,000 30-year fixed mortgage at 6.5%. You decide to refinance after 3 years to take advantage of lower rates.
| Scenario | Lender A (Penalty) | Lender B (No Penalty) |
| Remaining Balance | $320,000 | $320,000 |
| Refinance Fee | $6,400 (2% penalty) | $0 |
| Interest Savings (10 yrs) | $30,000+ | $30,000+ |
| Total Net Benefit | $23,600 | $30,000+ |
How to Confirm a Lender Doesn’t Charge a Penalty
Not all no-penalty claims are clear in marketing materials. Here’s how to be sure:
Ask These Questions:
- “Is there a prepayment penalty on this loan?”
- “How long is the penalty period, if any?”
- “Is there a cap on extra payments before the penalty applies?”
Review These Documents:
- Loan Estimate (Page 1) – This federal form clearly discloses prepayment penalties.
- Closing Disclosure (Page 1) – Final confirmation before signing.
Tips for Homebuyers and Agents
For Buyers:
- Use a mortgage calculator to run scenarios with and without extra payments.
- Factor flexibility into your decision—not just interest rates.
For Real Estate Agents:
- Educate clients on prepayment risks.
- Recommend lender partners with transparent terms.
- Add “No Prepayment Penalty” as a question during pre-approval.
Final Thoughts: Make the Mortgage Work for You
Prepayment penalties may seem minor, but in reality, they limit your financial freedom. Whether you’re planning to refinance, invest, or move, selecting a lender that allows you to pay off your mortgage without penalties is a smart, future-proof move.
Key Takeaways:
- A prepayment penalty can cost 1%–5% of your loan balance.
- Top lenders like Better Mortgage, Navy Federal, Bank of America, and Truist do not charge these fees in 2025.
- Confirm terms using the Loan Estimate and Closing Disclosure.
- Extra flexibility = extra savings.
Next Step: Contact your lender or agent and ask, “Does this loan have a prepayment penalty?” That one question could save you thousands.