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How is a pre-payment fee calculated?

How is a pre-payment fee calculated?

To calculate a pre-payment fee we take the extra payment over and above the 5% of the original loan amount and times it by the remaining fixed period and then times it by the interest differential.


Let’s look at an example


For a $1,500 loan pre-payment, with a remaining fixed period of 2 years and an interest differential of 0.25%, the calculation is:


$1,500 X 2 X 0.25% = $7.50


Or, $1,500 times 2 times 0.25% equals a $7.50 pre-payment fee in this example.