Prepayment penalties can be an unpleasant surprise if you are not expecting them. A prepayment penalty, sometimes called a penalty fee, is an additional fee charged by many lenders for simply paying off your loan early. It may sound crazy, but is paying off your loan early or making other extra payments can in fact cost you much more due to prepayment penalties. Knowing what they are and how they affect your mortgage are the first steps towards getting rid of them.Most people know that prepayment penalties are added on to the cost of a mortgage when you sign up for a loan. This means that you have made early payments and consequently paid more in interest and fees than the balance of the loan would have required to be paid at the time you took out the mortgage. The idea is that if you pay off the mortgage earlier you will avoid having to pay this extra money. In reality, many people find that they have to pay it anyway, even after taking out another mortgage. While it makes sense from a lender's point of view, many mortgage companies still charge prepayment penalties despite this being the case.There are different types of prepayment penalties and the amounts they can add up to can vary, depending on a number of factors. It's common for these penalties to be applied to auto loans, personal loans, and mortgages. The good news is that there are some ways to reduce the amount of prepayment penalties you pay and you can do so by shopping around for the best deal.One way you can lower the prepayment penalties on your mortgage is to negotiate for a lesser lump sum payment when you close the loan. Ask your lender if there is any penalty for prepayment because this is usually part of the penalty for converting the loan from an interest only to a fixed rate loan. In most cases, you can negotiate a much smaller lump sum payment, which will significantly reduce the amount of prepayment penalties you will have to pay. Depending on your situation, you may want to consider a home equity loan that incorporates a conversion feature so that you don't need to worry about paying any penalties at all.Another way that borrowers can benefit from lowering their prepayment penalties for their mortgage is to remain in their home long enough to pay the mortgage off completely. This sounds like a contradiction, but if borrowers take out an adjustable rate mortgage that features a low initial rate but a high variable rate once the mortgage matures, they can often get a better deal overall by staying in the home to repay the mortgage. Of course, this also means that they have to deal with extra interest rates once the mortgage has matured, but it's often worthwhile if the additional fees aren't too much to offset the additional cost. It's also worth noting that many homeowners are able to get better deals when they remain in their homes because they often qualify for larger amounts of credit and other perks that their competitors are unable to offer.One other way you can try to avoid prepayment penalties on your loan is to look for adjustable rate mortgages that feature "pay as you go" plans. These loans are perfect for borrowers who can change interest rates over time without suffering much penalty for doing so. Unfortunately, not all borrowers qualify for these types of plans, which is why shopping around for these adjustable rate loans can be a bit tricky. Of course, there are some decent deals if you search carefully, but the chance that you can secure one that offers a significantly lower rate than what you currently pay is small. Instead, opt for short-term fixed rate loans that feature no prepayment penalties for several years.In order to find the best deals on your mortgage loans, you'll likely have to contact several different lenders in order to compare the costs of their loans. When you work with a single lender, you won't have to deal with prepayment penalties or other fees, which is always a good thing. It will be easier for you to budget and plan for your mortgage in the long run, which is something important to most people. While you shouldn't let prepayment penalties keep you from buying a home, it is something to consider if you have an option you like.As with many other aspects of life, dealing with auto loans and student loans can be a complicated process. However, you should have no problem finding a quality loan online if you know where to look. Prepayment penalties on business loans and auto loans are certainly an option you should think about if your budget is tight, and you don't want to get penalty-free.