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My loan papers say there "MAY" be a penalty if I pay off the loan early. This seems rather gray to me since it does not state if there will be a penalty or how much? What is the usual penalty? Do lenders allow you to change this to "WILL NOT" easily? I have not signed the final loan papers yet and want to know if I should be concerned out this.
You need clarification. Different loan programs exist, some HAVE prepayment penalties, some do not. In "legal speak" the use of the term 'may' generally means THERE ARE GONNA BE PENALTIES. The lender must disclose what those are! If they eventually go away the lender should spell out EXACTLY when...
If you are going a traditional fixed rate program then you should have no prepayment penalty whatsover. It might be something as simple as a computer error. Some of the mortgage software programs default certain things and I know on two of them they automatically assume every loan will have a prepay. That's what happens when people design software for an industry they know nothing about lol.
If you are going a traditional fixed rate program then you should have no prepayment penalty whatsover. It might be something as simple as a computer error. Some of the mortgage software programs default certain things and I know on two of them they automatically assume every loan will have a prepay. That's what happens when people design software for an industry they know nothing about lol.
or it was designed circa 2004 when prepays were common.
Kath is right that if it's a regular fixed rate loan, there shouldn't be a prepay. However, everytime I've seen it say 'may', it means that there is one.
Clarify with your loan officer, this is a big deal.
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This may not be as big of an issue as it seems to be. If it is an FHA loan, there MAY be a prepayment penalty in that FHA requires a full month's worth of interest at payoff. What that means is that if you were to refinance and your closing was in the middle of the month, you would be charged interest for the whole month on your payoff per FHA guidelines as opposed to the per diem interest that would be included in the payoff of a conventional loan.
TIL's on FHA loans should always say that there MAY be a prepayment penalty.
This may not be as big of an issue as it seems to be. If it is an FHA loan, there MAY be a prepayment penalty in that FHA requires a full month's worth of interest at payoff. What that means is that if you were to refinance and your closing was in the middle of the month, you would be charged interest for the whole month on your payoff per FHA guidelines as opposed to the per diem interest that would be included in the payoff of a conventional loan.
TIL's on FHA loans should always say that there MAY be a prepayment penalty.
didn't know that...thanks for the info.
I, literally, just got my Hud approval back this week so I'm still learning the ins and outs of FHA.
This is a conventional non-FHA loan. I'll have to make sure they spell out what the penalty is if there is one. A partial month is not so bad, but I'd hate to get hit with a 5% penalty or something.
Location: central, between Pepe's Tacos and Roberto's
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Quote:
Originally Posted by glenn_1000
This is a conventional non-FHA loan. I'll have to make sure they spell out what the penalty is if there is one. A partial month is not so bad, but I'd hate to get hit with a 5% penalty or something.
If this is a conventional conforming mortgage then the MAY box should definitely not be checked. Perhaps it is an auto fill type error as was mentioned above. Follow the other advice and speak with your LO immediately. If it was an honest mistake make sure you sign and receive a new and accurate TIL. Get it on paper.
It may also mean that you have a soft pre-payment penalty.
When everyone was refinancing in 04 and 05 - banks used this type of penalty to discourage the practice. With a soft prepay you can sell your house without a penalty but not refinance. So in your case-the "may" might depend on whether you are selling or refinancing
Here is some more info on prepays Soft Prepayment Penalty
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