Prepayment Penalties on Adjustable Rate Mortgages 

Prepayment penalties are used to lock in a commitment by a borrower. If a lender is going to give you a loan, they want to be sure it will be in existence for a certain amount of time. On an adjustable rate mortgage, you need to be careful with such penalties. If interest rates shoot up the first couple years you have the loan, it can be nearly impossible to refinance because of the prepayment penalties. As with any loan, try to minimize or eliminate prepayment penalties to give yourself flexibility.