"Mortgage lenders seeking stable homeowners. Suitable candidates should be prepared to commit to their loans for as long as five years. Willing to pay top dollar -- or at least half a percentage point in rate -- for the business."

Sound like an attractive offer? Then maybe you should consider a prepayment penalty mortgage, which allows borrowers who agree not to pay off their loan balances in the first few years to get lower interest rates. They're becoming increasingly common in the states that permit them today as lenders look for anything to make their loans look cheaper in the face of rising rates -- and they can make sense for many consumers.

A matter of choice
"What it really boils down to is, the customer has to make the choice on his own," says Don Martin, owner of the mortgage brokerage Mayflower Capital in Los Altos, Calif. "If he thinks with high confidence that rates are going to go up, I would say it's logical to take the prepay to get a lower rate."

Right now, he adds, "We do have a reasonable number of people who are considering prepayment penalties."

That isn't surprising, given what's happened to the cost of financing in the past 10 months. After 30-year fixed-rate mortgages plunged below 6.5 percent last October, they've climbed steadily at times and shot up at others, only to level off around 8 percent in recent days. People left looking for ways to shave costs can turn to any number of solutions, but accepting a prepayment penalty is one that doesn't require much more than a signature.

The penalties are usually available on adjustable-rate mortgages, though they do show up on some fixed-rate products as well, experts say. Borrowers can sign on to one-, three- and five-year agreements. Some require only that people not refinance; others also impose the penalty for paying off a mortgage through the sale of a home.

The penalty zone
Most of the time, consumers are permitted to pay down their balances by as much as 20 percent annually without triggering a penalty. But lenders will charge a fee equal to some percentage of the amount of debt that exceeds that payoff allowance if a borrower goes too far.

For example, a customer with a $100,000 loan might be allowed to pay $20,000 off in the first year. But a $25,000 prepayment would result in some kind of assessment, according to Kirk Park, assistant vice president at Market Street Mortgage Corp. in Clearwater, Fla. Under one common arrangement, the borrower would have to pay six months' interest on $5,000. At a mortgage rate of 8 percent, that would come to $200. Somebody who paid the whole loan off would owe six months' interest on $80,000, or $3,200.

One other type of loan in the marketplace carries a "3/2/1" penalty. Somebody getting one of these mortgages would have to pay 3 percent of the loan balance in the first year, 2 percent in the second and 1 percent in the third in the event of a prepayment.

The no-prepay prize
So what's in this for borrowers? They can expect to pay anywhere from one-eighth of a percentage point to one-half of a percentage point less in rate than conventional customers. A 5/1 jumbo ARM with no points and no prepayment penalty that went for about 7.625 percent in mid-August, for instance, would carry a rate of just 7.375 percent with a penalty, according to Martin. On mortgages that start at higher rates, such as subprime loans and loans that don't require people to verify income or assets, the rate bonus can be even greater.

"You as the borrower agree to pay a prepayment penalty," says Todd Chamberlain, executive vice president of business development at the Columbia, Md.-based lender Columbia National Inc. "If the loan pays off in that time frame, for that agreeing to that penalty, you obtain as a borrower, typically a lower rate or lower points or a combination of the two upfront."

Still, borrowers should be sure they intend to stay put before getting a prepayment loan that charges them for selling their homes. They should be as confident as possible rates aren't going to drop dramatically, too, because refinancing would carry a hefty price tag. With October's rate plunge looking like an aberration rather than something likely to happen again soon, experts say that looks like a pretty safe bet today. But five years from now, nobody knows where rates will be.

Not available in all states
One final caveat: Check out local prepayment penalty regulations by talking to a lender in your area. Some states don't allow companies to charge prepayment penalties at all, while others have odd restrictions. In Illinois, for example, lenders can charge prepayment penalties on any adjustable-rate mortgage, but not on fixed-rate loans with rates greater than 8 percent, according to Park at Market Street. There may be slightly different rules for banks and mortgage companies, too, although a majority of states do permit penalties in one form or another.