Generally, mortgage lenders are prohibited from imposing prepayment penalties on most home loans under the Dodd-Frank Act. While changes to Dodd-Frank have occurred in recent years, prepayment penalties are still subject to regulations.If your mortgage is the exception to the rule, a prepayment penalty can only be assessed in the first three years. It’s capped at 2 percent in years one and two and 1 percent in year three. So, if your outstanding loan balance in year two is $295,000 and you pay your mortgage off, the lender could charge a prepayment penalty of up to $5,900.