If a borrower pays off their mortgage before the end of the term, what charge might they incur?

When a borrower pays off their mortgage before the end of the term, they often incur a penalty for early mortgage payout. This fee is imposed by the lender as compensation for the interest revenue they lose when the loan is paid off early.

Mortgage contracts typically anticipate a specific duration during which the lender expects to earn interest on the borrowed amount. By paying off the loan early, the borrower disrupts this financial expectation. The penalty can vary based on factors such as the lender's policies and the specific terms outlined in the mortgage agreement. It is important for borrowers to understand this potential cost when considering early repayment options.

The correct answer emphasizes the specific consequence tied directly to the act of early mortgage repayment, distinguishing it from other fees that are unrelated to early payoff situations.