A prepayment penalty is a fee charged to borrowers that make full payment on their mortgage, or pay off a substantial portion (generally anything exceeding 20% of the total loan amount), ahead of schedule. This is a clause written into some contracts to protect the lender’s book of business in exchange for providing a lower interest rate, or for providing financing to a high-risk borrower.
Prepayment penalties vary with different lenders, but generally apply to a one-, two-, three-, or five-year period of
time. This fee can be expressed as either a specific number of months’ interest or a percentage of the outstanding balance. A ‘hard’ prepayment penalty applies to either the refinance or the sale of a property. A contract written with a ‘soft’ prepayment penalty permits the borrower to sell their property without incurring a penalty, but does restrict refinancing for a set period of time. It is important for the consumer to know that a prepayment penalty is the borrower’s choice and should never be considered a requirement!
Make sure you are working with a reputable loan professional who is aware of your long-term plans before consenting to sign off on an agreement that includes a prepayment penalty! Always ask for a written evaluation of your loan options.
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If you’re looking for a mortgage in the Atlanta area, you can visit my primary Peachtree City and Newnan mortgage lender website at www.wdarrellwalters.com. If you’re interested in Free Business Boosters for Real Estate, visit www.freebusinessboosters.com. Thanks!
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