A prepayment penalty is a fee that some lenders charge if you pay off all or part of your mortgage early. If you have a prepayment penalty, you would have agreed to this when you closed on your home. Not all mortgages have a prepayment penalty. typically, a prepayment penalty only applies if you pay off.
For many new mortgages, the lender cannot charge a prepayment penalty – a charge for paying off your mortgage early. If your lender can charge a prepayment penalty, it can only do so for the first three years of your loan and the amount of the penalty is capped.
You can sell your home without a penalty. If you have a prepayment penalty on loan, you may be required to pay your lender 6 payments or sometimes a percentage of the loan. http://getprequalified.com/article_list_mortgage_loan_programs.php
If your loan term is less than 15 years, there’s no prepayment penalty. If your SBA 7(a) loan term is 15 years or more, you’ll be hit with a prepayment penalty if you pay off your loan within the first three years. In that case, you’ll have to pay 5%, 3%, then 1% of the amount you prepaid, respectively, for three successive years.
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.
A Prepayment Penalty May Be Required on a Sub-Prime Loan Prepayment Penalties Are Rarely Waived Contract Chicanery Often Involves Prepayment Penalties It can easily be prevented, see How to Shop For a Mortgage and Disclosure Rules on Mortgage Prepayment Penalties.
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A prepayment penalty on a mortgage essentially charges you extra if you pay off the mortgage early. What is considered early, however, will be laid out in your loan documents and therefore must be scrutinized carefully. Not all mortgages come with them, and they are certainly not required.
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