Prepayment Penalty - (Also called a "Pre-Pay") A penalty charged by the investor for the early payoff of a loan. Some loans have a "hard" or "soft" prepayment penalty whereas a fee is charged if the loan is paid off within a specified time frame (usually 2-3 years). A "hard" pre-pay means the fee will be charged no matter the reason for the payoff. A "soft" pre-pay means the fee is only charged if the borrower refinances, but not if the property is sold.