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RE: Prepayment penalty

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Icon Mini Profile Efemias





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Post Posted: Wed Apr 19, 2006 10:02 am    Post subject: RE: Prepayment penalty
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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.
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Post Posted: Wed Apr 19, 2006 10:08 am    Post subject:
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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.

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Icon Mini Profile Samantha
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Post Posted: Wed Apr 19, 2006 10:38 am    Post subject:
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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

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Last edited by Samantha on Wed Apr 19, 2006 11:47 am
Icon Mini Profile Bill
Bill


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Post Posted: Wed Apr 19, 2006 10:44 am    Post subject:
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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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Bill Clanton is a Mortgage Specialist and Manager of State Street Mortgage of Illinois. StateStreetMortgage.Net
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