A fee that may be charged to a borrower who pays off a loan before it is due. There are two types. A HARD prepayment is a mandatory prepayment penalty for paying off a mortgage loan during the penalty period. A SOFT prepayment is only charged if the title does not change hands. In this instance, no prepayment occurs for the sell of the property, but will occur if the the home is refinanced. The typical prepayment is 6 months of interest.