Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Basically there are few legitimate reasons to accept a loan with a pre-payment penalty -- such loans are typically the type that have an artificially low "teaser rate" and then will adjust to something that may very well DESTROY you!
you should be fine. most pre-payments don't exceed 3 years. some states even limit this to 2 years or less. i wouldn't worry about it. what this means is you can not sell or re-finance in the next 3 years or your determined time without paying that penalty.
another option is getting a different loan with no penalty with a slightly higher rate. its really up to you. i wouldn't fret over it. you can also keep the same loan and buy the pre-payment out thru a higher rate.
I would be extremely wary of a loan that contained language establishing penalties for early completion. I would look for another lender.
I would agree on this.
Most of the "teaser" very low 12-24 month rates we saw in 2004 and 2005 for 2-3% interest rates contained language that prohibits the borrower to refinance for 36-60 months. That's one of the reasons we have a mortgage mess. These people wanted to refinance after 24 months only to find out that they had to pay 2% of the prepayment penalty.
My brother almost got caught in this situation because he had a 36 month prepayment penalty. He relocated to the West Coast for a job after 18 months and had a 1 million mortgage outstanding. When he sold his house in McLean, VA the morgage company demanded to keep 20K as a penalty.
Fortunately, my family has a real estate lawyyer we re-read the terms of the mortgage and selling his house was not a provision but refinancing was a provision. However, the bank was holding 20K in cash after closing for a 2 month period while this mess was being resolved.
So be very careful of prepayment penalties. If the rate seems too low, it's because the banks/mortgage companies want to make money and they will include the provision. These terms are clearly written when signing paperwork (sometimes on page 11 of page 18 but they are clearly written). I just wished people read everything before they sign. I took 4 hours to read all of my mortgage paperwork, crossing off things I did not agree to. The closing company was rather annoyed but it's within your rights to read the paperwork.
Hey guys thanks for the advice, actually the mortgage does not have a pre-payment penalty, it was just so confusing reading the disclosure, but I looked it over and I will not have a prepayment penalty.
Most of the "teaser" very low 12-24 month rates we saw in 2004 and 2005 for 2-3% interest rates contained language that prohibits the borrower to refinance for 36-60 months. That's one of the reasons we have a mortgage mess. These people wanted to refinance after 24 months only to find out that they had to pay 2% of the prepayment penalty.
My brother almost got caught in this situation because he had a 36 month prepayment penalty. He relocated to the West Coast for a job after 18 months and had a 1 million mortgage outstanding. When he sold his house in McLean, VA the morgage company demanded to keep 20K as a penalty.
Fortunately, my family has a real estate lawyyer we re-read the terms of the mortgage and selling his house was not a provision but refinancing was a provision. However, the bank was holding 20K in cash after closing for a 2 month period while this mess was being resolved.
So be very careful of prepayment penalties. If the rate seems too low, it's because the banks/mortgage companies want to make money and they will include the provision. These terms are clearly written when signing paperwork (sometimes on page 11 of page 18 but they are clearly written). I just wished people read everything before they sign. I took 4 hours to read all of my mortgage paperwork, crossing off things I did not agree to. The closing company was rather annoyed but it's within your rights to read the paperwork.
that is called a soft pre-pay penalty. a hard pre-pay is a penalty regardless.
If it says "may" have a prepayment penalty, that does not mean it does or does not. Find out if it does or does not. If it does not, have someone put that in writing. If it does and it is a fixed rate mortgage, do it if you plan to,live in house longer than the prepayment period. If it is an adjustable rate mortgage, do not do it. Fixed rates are so low now, no need to do adjustable with a prepayment penalty. If an adjustable is OK with you, do one without a prepayment penalty.
My truth-in-lending disclosure states that I may have to pay a pre-payment penalty, is this a negotiable clause or is this just the way it is?
Go elsewhere for the loan. That's just their way of making sure they can rip you off if they want to.
There should never be a penalty for paying a loan back early.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
