Tuesday, March 06, 2007

Mortgage Prepayment Penalties - Just Say No

One of the most common terms establish in a new home loan is a prepayment penalty. This type of punishment states that if the borrower pays off the loan early, commonly during the first five old age of the loan, then the borrower will be responsible for paying an further amount of money, typically about six calendar months interest on 80% of the mortgage balance. Sub-prime market loans will typically carry prepayment punishments more than standard mortgage loans.

You may be after on keeping the house for the full continuance of the prepayment penalty, and be tempted not to worry about it much. But sometimes life fortune change, so it's wise to avoid any type of prepayment punishment if you can. A typical prepayment punishment might be five calendar months worth of monthly loan payments, so it's worth checking on. Of course, you should always inquire (before you sign) if a new loan have a prepayment penalty. In fact, inquire the lending officer to point out to you in the written document where a prepayment punishment is discussed.

Most points in a loan are subject to negotiation. If you haven't signed loan document yet, and you happen that your loan have a prepayment penalty, you might offer to pay an further shutting point or so to see if it can be removed. The cardinal at this stage is that if you hold to the prepayment penalty, you should seek to happen ways to reduce either the amount, the term, or both as much as possible.

If you already have got a loan, you are jump by the terms of the document, unless you can negociate them. There are perfectly legitimate grounds why you may desire to pay off a short letter early - most often, owed either to refinancing or merchandising the house. You may be able to reach your lender to see if they will relinquish the prepayment punishment if they are able to supply refinancing. If interest rates have got dropped a lot, and you can't get out of the prepayment penalty, it may be deserving peal that amount into a new loan. And of course, seek to get the new loan without a prepayment penalty.


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