text: i paid a prepayment penalty on my morgage company.  can i get that back  at the end. or  its tax deductable?   yes, a prepayment penalty is deductible.  it's essentially a payment in lieu of the interest the lender would have earned had you not prepaid.  it's deductible as interest.  from the irs website (pub. 936):  mortgage prepayment penalty.   if you pay off your home mortgage early, you may have to pay a penalty. you can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan.