RE: Prepayment penalty

Efemias · Joined: 19 Apr 2006 Posts: 1 0.06 Dollars($)

WE are looking to buy our first house from a family member who moved into the house about a 1 year ago, the question is what the prepayment penalty for the family member if he sold the house to us, he paid about $139,900 for the house.

blue · Posted: Wed Apr 19, 2006 10:08 am Post subject:

Hi Efemias,

I think he should look in to the agreement papers where the matters regarding prepenalty would have been mentioned.

Otherewise he should ask the the lender for knowing the prepayment penalty.

Blue

Samantha · Posted: Wed Apr 19, 2006 10:38 am Post subject:

Hi Efemias,

Welcome to Mortgagefit Forums.

I would like to know the agreement clause of your family member with the lender mentioned in the Note.

Generally if the mortgage has a prepayment penalty then, the lender is allowed to charge a penalty if, in any 12-month period of the first 36 months of the loan, more than 20% of the outstanding principal balance is paid.

In that case, under the most common penalty clause, the borrower might be required to pay the lender the lesser of 2% or six months' worth of interest on the amount that is paid over 20%.

I think that gives an idea. You can check for more on prepayment penalty here.

Feel free to ask if you have more doubts.

God bless you.

For MortgageFit,
Samantha

Bill · Posted: Wed Apr 19, 2006 10:44 am Post subject:

Efemias,

A pre-payment penalty is part of a mortgage note that stipulates a pay-off of the principle loan balance prior to a certain date can result in a penalty based on a percentage of this balance. Not all mortgages have pre-payment penalties.

There are also two types of pre-payment penalties; a 'Hard' Pre-Pay and a 'Soft' Pre-Pay. The Hard pre-pay would have a penalty due if the property is either sold or refinanced prior to the pre-payment penalty date. The Soft pre-pay may have a penalty for refinancing but possibly no pre-payment penalty if the home is sold.

If your family member purchased the home with a mortgage, any possible pre-payment penalty would be detailed in the mortgage "Note". Your family member should have a copy of this Note from their loan closing. If they cannot locate the Note, they can request a copy from their current mortgage servicing company. Simply call the customer service number on their monthly statement.

To ensure you are interpreting the Note correctly, you can also order a mortgage pay-off from the servicing company by calling the same customer service number. The official mortgage pay-off will list any penalty in its calculation ... eliminating any doubts as to the amount due.

Best of Luck!

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