Often, lenders demand a prepayment penalty if you prepay the mortgage before a certain amount of time, usually five years, to deter borrowers from quickly refinancing their loans, which would drastically cut into the lenders’ profits.
Below we outline how to determine if your mortgage has a prepayment penalty. Although these fees are relatively uncommon, no one wants to.
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Federal law prohibits some mortgages from having prepayment penalties, which are charges for paying off the loan early. For many new mortgages, the lender cannot charge a prepayment penalty – a charge for paying off your mortgage early.
As a result of the subprime mortgage mess, prepayment penalties are under close scrutiny.
By signing a mortgage contract containing a prepayment penalty clause, the borrower is agreeing to a charge the lender will make when a mortgage is repaid .
Prepayment penalties are a part of many mortgage contracts that make it expensive to refinance into a new home loan. If your mortgage contract includes a prepayment penalty, you may have to pay your original lender thousands in additional fees as part of any future refinance.
A prepayment penalty is usually specified in a clause in a mortgage contract stating that a penalty will be assessed if the borrower significantly pays down or pays off the mortgage before term,
How do you know if your mortgage has a prepayment penalty, and what does it mean for you when it does? Click through to find out.
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Loan prepayment penalties are fees lenders might include in their terms to ensure you pay a certain amount of interest on your loan before paying it off. It might sound crazy, but making extra payments or paying your loan off early can actually cost you more because of loan prepayment penalties.
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Prepayment Penalties: Soft vs. Hard. Before you borrow money for the purchase or a home, it’s crucial to understand if your mortgage has any prepayment penalties, and if so, which type. There are two types of prepayment penalties you should be aware of – hard and soft.