Upon examination of his mortgage document, Jared finds a clause stating he will owe additional interest if he pays off his loan within one year of the loan origination date. What type of penalty does this describe?

Prepayment penalty

Explanation:

A prepayment penalty is charged when a borrower significantly writes down or offset his loan earlier than as planned in the loan agreement, especially within the first five year of taking the loan. Some lenders restrict repayment to a certain value before you can be fined. It serves as a form of security on the lenders interest income.

It is calculated on the outstanding loan balance which mean the longer you owe, the less your penalty and vice versa.

On the side of the borrower, accepting the clause in the loan agreement always come with a lower interest on loan