A prepayment penalty is a fee that lenders charge borrowers for repaying a loan before the end of the loan term. This fee is typically calculated as a percentage of the loan balance, and it is designed to compensate the lender for the loss of interest that results from early repayment.
One of the main advantages of hard money loans is that they do not have a prepayment penalty, meaning that borrowers are free to pay off their loans early without incurring any additional fees. This flexibility can be helpful for borrowers who anticipate being able to refinance their loan after a while.