Which type of loan may include prepayment penalties?

Conventional loans may include prepayment penalties because these types of loans are typically issued by private lenders that set their own terms and conditions. This means that lenders can impose penalties if borrowers pay off their loans early. Such penalties are often included as a means for the lender to recover some of the interest income they would potentially lose when a loan is paid off before its scheduled end date.

In contrast, government-backed loans like VA and FHA loans generally do not have prepayment penalties. These loans are designed to be more borrower-friendly, making it easier for individuals to pay off their mortgages without financial repercussions. As a result, most government-backed loans provide flexible options for early repayment, whereas conventional loans can vary significantly in their terms depending on the lender's policies.