Pre
Payment Penalty
What
Is a Mortgage Pre Payment penalty?
A
pre
payment penalty states that if you decide to payoff
your mortgage in full, you will have to pay a penalty to the lender.
The
amount of the prepayment penalty is determined by a percentage of the
outstanding balance at the time of the payoff. Or it is determined by
a specific number of months worth of interest. Six months interest is
usually the norm.
Pre
payment penalties occur if you decide to pay off the loan within the first
couple of years of the mortgage
term. Usually a pre payment penalty will last no more than five years,
than they are gone for good.
The
pre payment penalty is contractual with the lender and is part of the
terms of the loan discussed before settlement. However, always ask about
wether or not there is a pre payment penalty, you wouldn’t want
it to sneak up on you.
Why
Is There a Pre Payment penalty?
A
lender imposes a pre payment penalty on a borrower in an attempt to discourage
them from paying off their mortgage early by refinancing
with another lender.
When
this happens to a lender within the first couple of years of the term,
they only stand too loose, so they impose the penalty.
Having
a pre payment penalty waived during the course of the mortgage term is
highly unlikely. It just is not in the best interest of the lender to
waive it, just so a borrower can take their business else where.
Some
states do not allow the practice of penalizing a borrower for paying off
their mortgage early.
Points
Good
Faith Estimate
Origination
Fees
Payments
Toward Principal
|
