Which type of loan is specifically not eligible for prepayment penalties?

Government-insured loans, such as those backed by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), are specifically structured to encourage homeownership and promote accessibility for borrowers. This is why such loans are generally not subject to prepayment penalties.

The rationale behind this is to provide borrowers with the flexibility to pay off their loans early without incurring extra fees, which aligns with the goal of making housing more affordable and attainable. By eliminating prepayment penalties, the loan terms become more favorable, allowing borrowers to refinance or pay off their loans if they choose, which can save them money in interest over time.

In contrast, conventional loans and other types of loans might have prepayment penalties as a means for lenders to recoup the costs associated with issuing the loan. Subprime loans often carry higher risks and fees, which may include prepayment penalties. Private loans may also include such penalties depending on the lender's policies. Therefore, government-insured loans stand out as the type specifically designed without prepayment penalties to enhance borrower benefits.