A brainstorm on refinance mortgage
The penalty is intended to keep the mortgage open long enough for the bank to make a decent profit from it. Almost all mortgages incur a penalty of this kind, but usually it does not cause any difficulties for the mortgage holder. The penalty period is usually so short (for example, one year on a twenty to thirty year loan), that it is extremely uncommon for a mortgage holder to pay off the mortgage or get mortgage refinancing during the penalty period. However, if the loan is one of the few with a longer penalty period, the homeowner can effectively be prevented from getting mortgage refinancing during a period when interest rates have dropped to attractively low levels. If paying off the original loan within the penalty period incurs a substantial charge, the cost savings of a new mortgage may be completely wiped out.