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First of all, I don't think 5 years is the correct term of this loan. For a monthly payment of $724.34, the loan would have to be 10 years. So, based on a loan for 10 years, you would pay a total of $86,648.56 if you carried it to term and made no additional payments. That's $70,000 in principle; $16,648.56 in interest.
Now, considering your two $10,000 payments and regular payments, your payoff will be something like $47,052.70 on December 10th. Total principal paid will be $70,000; total interest paid will be $1,398.74.
Answer to the question is $15,249.80 saved in interest over the life of the original loan. This number doesn't take into account the bank fees of $510. Accounting for the $510 in fees plus the $1,398.74 interest, you would end up effectively paying 6.023% interest.
Excellent!! That's what I was looking for!!
So last night, I dug around in the Closing documents and finally found relevant info which I had indeed signed on the Closing day along with multiple other docs and here is what it says, quoted below. So.... in light of this info, how much will I save if I pay off the rest of the $47,000 (which should be actually down to $46,500+ by early December) in a couple of weeks from now??
".... PREPAYMENT PENALTY. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Upon prepayment of this Note, Lender is entitled to the following prepayment penalty: Borrower agrees to pay a prepayment penalty equal to (i) 3% of all Excess Payments made during any Billing Cycle that occurs within one year after the date of this Note, (ii) 2% of all Excess Payments made during any Billing Cycle that occurs more than one year but within two years after the date of this Note, and (iii) 1% of all Excess Payments made during any Billing Cycle that occurs more than two years but within three years after the date of this Note. Thereafter, this Note may be paid in part or in full at any time without prepayment penalty. Lender may waive or forego its right to assess and collect a prepayment penalty on one or more occasions without thereby waiving or foregoing its right to assess and collect a prepayment penalty on future occasions. For purposes of this prepayment penalty provision, (i) a "Billing Cycle" is the period of time extending from the date a regularly scheduled payment (whether of principal, interest, or principal and interest) is due and payable under the terms of this Note, to and including the date the next ensuing regularly scheduled payment (whether of principal, interest, or principal and interest) is due and payable under the terms of this Note; (ii) if this Note is paid in full during a Billing Cycle, then all payments of principal made during that Billing Cycle shall be considered "Excess Payments" for purposes of calculating the prepayment penalty; and (iii) all payments made during a Billing Cycle in which this Note is not paid in full are considered "Excess Payments" for purposes of calculating the prepayment penalty to the extent they exceed, in the aggregate, the sum of (a) all unpaid sums owing from prior Billing Cycles (plus any late charges relating thereto), plus (b) twice the amount of the next ensuing regularly scheduled payment (whether of principal, interest, or principal and interest). Except for the foregoing, Borrower may pay all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing. relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower's making fewer payments. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: [BANK NAME / ADDRESS]. .... "
I think I can reasonably assured answer my own question in light of the above 3% penalty info. Firstly, here is my morgage situation, per this calculator:
So [rough numbers!]:
if I had continued to pay for the next 9.5 years then total interest would have been $16,652. So far I have paid about $1080 in interest, and $510 in penalty. By ten December the total interest would be about $1200 and additional probably $1380 penalty. Combining all interest and penalties id pay about $3100. So $16,652 minus $3100 should be my savings which $13,000+.
Thank you all for your inputs! Much appreciated. And, no, the money is not sitting in the current mortgage holder's bank and so the screen caps I shared shouldn't affect me (you know, online frauds etc). Those screen caps reflect the amount I OWE to the bank anyway!
Excellent!! That's what I was looking for!!
So last night, I dug around in the Closing documents and finally found relevant info which I had indeed signed on the Closing day along with multiple other docs and here is what it says, quoted below. So.... in light of this info, how much will I save if I pay off the rest of the $47,000 (which should be actually down to $46,500+ by early December) in a couple of weeks from now??
".... PREPAYMENT PENALTY. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Upon prepayment of this Note, Lender is entitled to the following prepayment penalty: Borrower agrees to pay a prepayment penalty equal to (i) 3% of all Excess Payments made during any Billing Cycle that occurs within one year after the date of this Note, (ii) 2% of all Excess Payments made during any Billing Cycle that occurs more than one year but within two years after the date of this Note, and (iii) 1% of all Excess Payments made during any Billing Cycle that occurs more than two years but within three years after the date of this Note. Thereafter, this Note may be paid in part or in full at any time without prepayment penalty. Lender may waive or forego its right to assess and collect a prepayment penalty on one or more occasions without thereby waiving or foregoing its right to assess and collect a prepayment penalty on future occasions. For purposes of this prepayment penalty provision, (i) a "Billing Cycle" is the period of time extending from the date a regularly scheduled payment (whether of principal, interest, or principal and interest) is due and payable under the terms of this Note, to and including the date the next ensuing regularly scheduled payment (whether of principal, interest, or principal and interest) is due and payable under the terms of this Note; (ii) if this Note is paid in full during a Billing Cycle, then all payments of principal made during that Billing Cycle shall be considered "Excess Payments" for purposes of calculating the prepayment penalty; and (iii) all payments made during a Billing Cycle in which this Note is not paid in full are considered "Excess Payments" for purposes of calculating the prepayment penalty to the extent they exceed, in the aggregate, the sum of (a) all unpaid sums owing from prior Billing Cycles (plus any late charges relating thereto), plus (b) twice the amount of the next ensuing regularly scheduled payment (whether of principal, interest, or principal and interest). Except for the foregoing, Borrower may pay all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing. relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower's making fewer payments. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: [BANK NAME / ADDRESS]. .... "
The charges of $256 are the MONTHLY INTEREST on your loan. They are NOT the penalty charges. Penalty charges (according to the agreement you printed above) would amount to 3% of any excess payments made during the first year of the loan. So, 3% of $10,000 is $300. Since you made two of these $10k excess payments, then you should be charged a total of $600 in penalty charges. This will be in addition to the monthly interest charges.
Also, if you plan to pay the loan off entirely within the first year, then (using approximate numbers) you can expect to pay an additional $1,410 ($47k x .03) in penalty charges. This will be in addition to any monthly interest charges which should now be approximately $171 per month.
Perhaps the term “mortgage†is misleading. It sounds like you have a “bank noteâ€. That is, a basic loan from the bank that is working like a mortgage. There must be a residence on the property to get a mortgage per se. Thus the bank may have special rules.
So as you see, your Bank Note had special rules not usually found in a regular mortgage. But it was definitely worth your while, as you got the land you wanted.
The charges of $256 are the MONTHLY INTEREST on your loan. They are NOT the penalty charges. Penalty charges (according to the agreement you printed above) would amount to 3% of any excess payments made during the first year of the loan. So, 3% of $10,000 is $300. Since you made two of these $10k excess payments, then you should be charged a total of $600 in penalty charges. This will be in addition to the monthly interest charges.
Also, if you plan to pay the loan off entirely within the first year, then (using approximate numbers) you can expect to pay an additional $1,410 ($47k x .03) in penalty charges. This will be in addition to any monthly interest charges which should now be approximately $171 per month.
Good to know. But I still think the overall numbers are not going to be too far off from my estimated savings. Thanks. Now, as the loan terms say above, the Bank could waive the penalty and I will ask for that but I doubt they will.
Quote:
Originally Posted by luv4horses
So as you see, your Bank Note had special rules not usually found in a regular mortgage. But it was definitely worth your while, as you got the land you wanted.
The document says 'Promissory Note' when I checked last night. So you are probably right! Thank you. And yes, while there will be a price to pay due to the penalties but I indeed will own a great property! What I do deeply regret is that I had walked on that property barely 3-4 years ago with interest to buy--it was only around $70,000-90,000 then. But I thought there was a little too much slope--it wasn't! The recent seller paid that kind of amount and we laughed about it during the Closing. They said something like: 'Well, after 5 years, you will get the big reward like we did! '
The bank easily could have incurred an expense at the time they booked the loan to hedge out the interest rate and adds in the prepayment penalty to mitigate the expense should you pay it off early. Not a big deal but something you should have know before signing.
Everyone should read their loan docs before executing
Good to know. But I still think the overall numbers are not going to be too far off from my estimated savings. Thanks. Now, as the loan terms say above, the Bank could waive the penalty and I will ask for that but I doubt they will.
The document says 'Promissory Note' when I checked last night. So you are probably right! Thank you. And yes, while there will be a price to pay due to the penalties but I indeed will own a great property! What I do deeply regret is that I had walked on that property barely 3-4 years ago with interest to buy--it was only around $70,000-90,000 then. But I thought there was a little too much slope--it wasn't! The recent seller paid that kind of amount and we laughed about it during the Closing. They said something like: 'Well, after 5 years, you will get the big reward like we did! '
The "Promissory Note" is the evidence of your indebtedness. In other words, it's your legal acknowledgement that you owe the money. You likely live in a state that uses a "Deed of Trust" which pledges the property you are buying as security/collateral for the note.
I'll bet that if you had shopped around some and/or been a good (knowledgeable) customer of a commercial bank, you could have gotten a loan based on simple interest without any prepayment penalties. As it is, prepayment penalties are going to cost you $2,100 in penalties ($70k x .03). This is going to be roughly TWICE AS MUCH as you will pay in interest for the ~6 months that you have the loan.
In other words, you will be paying roughly 13% annual interest (effectively) in interest on the money that you borrowed. This is counting both the stated interest payments plus the penalties. And this is not counting any closing costs or origination fees involved in obtaining the loan.
The "Promissory Note" is the evidence of your indebtedness. In other words, it's your legal acknowledgement that you owe the money. You likely live in a state that uses a "Deed of Trust" which pledges the property you are buying as security/collateral for the note.
I'll bet that if you had shopped around some and/or been a good (knowledgeable) customer of a commercial bank, you could have gotten a loan based on simple interest without any prepayment penalties. As it is, prepayment penalties are going to cost you $2,100 in penalties ($70k x .03). This is going to be roughly TWICE AS MUCH as you will pay in interest for the ~6 months that you have the loan.
In other words, you will be paying roughly 13% annual interest (effectively) in interest on the money that you borrowed. This is counting both the stated interest payments plus the penalties. And this is not counting any closing costs or origination fees involved in obtaining the loan.
You are right about the costs but it still doesn't make me too much regret about my choice. The realtor did direct me to some bank which specializes in land loans; if I recall, it was Ag South. But even days after contacting them there was no response and, knowing my timeline AND a potential change in employment coming up, plus I had expected the interest rates to rise, I went with the good old local bank.
If I were to throw away property right now, I bet I would at least recoup my cost. The land was bought after a year of looking around. It is near my home and though I am not an investor or even a smart financial manager, I think I have made a very safe choice. As to what I will do with the land, no plans yet. Perhaps one day could be farm-land or a winery or some RV campground. But the tree-hugger in me would like to keep it untouched for the wildlife as long as possible...
I will post the final numbers in a couple of weeks... until then: Have a belated Happy Thanksgiving and Thank you again!
This thread illustrates the advantages of dealing with the Commercial Loan Department (CLD) of your bank, assuming that your bank has a Commercial Loan Department. If they don't, then consider changing banks to one that DOES have that department.
If a person is going to be doing much buying of property and/or needing money from time to time for investment purposes, then dealing with the CLD is a MUST, IMO. Otherwise, you'll be dealing with the Mortgage Loan Department or the Consumer Loan Department of the bank, both of which will eat you up with fees, charges, and potential penalties of all kinds on every loan.
If all you do is buy a house/home every 5 years or so, then you won't need (or qualify for) the CLD. OTOH, if a person is going to be doing any investment, especially real estate investment, then they definitely need to contact the CLD of their bank and get themselves established with them. It sure makes loans and business dealing much easier.
You don't have to be a multi-millionaire to establish yourself with the CLD of your bank, but you do have to demonstrate a sound financial footing with good income and assets that are more than enough to cover your liabilities.
I think I can reasonably assured answer my own question in light of the above 3% penalty info. Firstly, here is my morgage situation, per this calculator:
So [rough numbers!]:
if I had continued to pay for the next 9.5 years then total interest would have been $16,652. So far I have paid about $1080 in interest, and $510 in penalty. By ten December the total interest would be about $1200 and additional probably $1380 penalty. Combining all interest and penalties id pay about $3100. So $16,652 minus $3100 should be my savings which $13,000+.
Thank you all for your inputs! Much appreciated. And, no, the money is not sitting in the current mortgage holder's bank and so the screen caps I shared shouldn't affect me (you know, online frauds etc). Those screen caps reflect the amount I OWE to the bank anyway!
So... it is all settled now. The final automatic payment came out early December and the attached screen cap shows what was up to that. After that, I made some more payments. The mortgage came down to $46,810 after the early December automatic payment but I paid off all the rest and I incurred additional penalties of about $1340 (instead of $1380, as I estimated in my quote above).
How much did I save in the end?? That was the question and my tired, foggy brain telling me it was around $13,000.
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