Mortgages Dont Get Pounded By Prepayment Penalties

Mortgages - Don’t Get Pounded By Prepayment Penalties
Many people make a​ major mistake when applying for a​ mortgage .​
They are so relieved to​ get the​ loan that they fail to​ pay attention to​ prepayment penalties in​ the​ loan documents.
Prepayment Penalties
With the​ refinance craze of​ the​ last few years,​ many borrowers have been surprised to​ find they are locked into their loan with prepayment penalties .​
Boiled down,​ these penalties require borrowers to​ pay fees if​ they pay off the​ loan prior to​ a​ certain point in​ time .​
By including such language in​ the​ loan documents,​ some lenders are trying to​ ensure they will recover a​ certain amount in​ interest on​ a​ loan as​ well as​ reach a​ certain maturity date on​ the​ loan .​
Lucky you​ .​
Prepayment penalties come in​ a​ variety of​ forms .​
First and foremost,​ state law controls the​ amount and types of​ penalties that can be charged by a​ lender .​
Of course,​ this means each state has different laws and you​ should make sure you​ understand what can be done in​ yours .​
As to​ the​ payments themselves,​ they typically come in​ two forms .​
The first is​ a​ percentage of​ the​ overall loan For instance,​ assume you​ have a​ $400,​000 mortgage and the​ prepayment penalty is​ 3 percent .​
Your prepayment penalty will be $12,​000 .​
This is​ typically true even if​ you​ are selling your home because of​ financial difficulties .​
In some states,​ prepayment penalties can come in​ the​ amount of​ interest to​ be charged over a​ period .​
Assume you​ are paying $2,​000 a​ month in​ interest on​ your loan .​
The prepayment penalty may be something equal to​ 10 months of​ interest from the​ date of​ prepayment .​
Put another way,​ you​ are looking at​ a​ $20,​000 prepayment penalty .​
Obviously,​ such a​ payment is​ going to​ be a​ dent in​ any profit you​ would pull from the​ home .​
Lenders are not required to​ identify prepayment penalty language in​ loan documents .​
You absolutely must read your loan documents to​ make sure penalties aren’t included.
Prepayment penalties are not mandatory in​ loan documents .​
If a​ lender refuses to​ waive the​ penalties,​ make sure to​ shop around for a​ better deal .​
Don’t get pounded on​ the​ back end of​ the​ loan.

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