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Sam · Posted: Fri Apr 09, 2004 3:19 am Post subject: Prepayment Penalty

Borrowers are often required to pay an amount of charge to the lender on account of repaying their mortgage loans before the termination of the loan period. Such a kind of payment is known as prepayment penalty. Lenders usually charge such penalties in order to make up for the loss in interest payments due to prepayment of the loan.

For example, Jenny took a mortgage of $500,000 for 6 years from Ronald. He repaid the full mortgage amount at the end of 5 years. In return, Ronald charged him a sum of $1000 for prepaying the mortgage amount. This amount is known as Prepayment Penalty.

Features:

Lenders impose prepayment penalties in order to prevent borrowers from refinancing their mortgages when the market rates are sufficiently low. They may also demand a penalty when the borrower pays an amount equal to 20% of the original principal balance. Lenders often accept low rates on a mortgage in return of the prepayment penalty.
State laws regulate the amount of prepayment penalty and the types of penalty that are charged by a lender. Prepayment penalty is expressed as a percentage of the outstanding loan balance at the time of prepayment or it can be equal to the interest for a number of months from the date of prepayment.
The provision for prepayment penalty should be stated in the Truth-in-Lending disclosure. Prepayment penalties are imposed on adjustable rate mortgages and sometimes on fixed rate mortgages.
Prepayment penalty is charged not only when a borrower refinances his existing loan but also if he pays off the mortgage by selling his property.
Generally, prepayment penalty is deductible only when it is paid at the time of closing of the new loan. But it should be equal to the amount paid at closing.

A prepayment penalty helps the lender in the sense that he can compensate for the loss in the interest he could have received had the borrower not repaid the loan. On the other hand, borrowers can repay their mortgages before the scheduled time and pay prepayment penalty, thereby saving several dollars in total interest due to the reduction in time period.

Guest

Loan in question is an adjustable rate loan, the prepayment addendum form ,, in the title, says (for fixed rate loans). wasnt the wrong penalty addendum form used, voiding it. we are selling the house 4 months before end of penalty for 2 years.

blue · Posted: Mon Feb 27, 2006 2:02 pm Post subject:

Hi Bily,

Did you inform your lender about the mistake? Normally it shouldn't have happened.

Regards,
Blue

jameshogg · Posted: Mon Feb 27, 2006 2:12 pm Post subject:

Hi,

If there is any mistake in financial matters it's better to get it rectified. Is there any urgency that you are prepaying the loan with four before the penalty period?

James

Guest

Blue: Yes theyhave been informed. But they ignore the fact that wrong form was used by mortgage co. and insist on us paying the penalty.
James: We are selling the house, because of financial problems. We have a buyer but they have fig. the penalty at $5,000. Money our daughter does not have.

Guest

Is there any way the mortgage co. can be checked? I really do not have a good feeling about it!

adonis · Posted: Tue Feb 28, 2006 8:41 am Post subject: RE

Hi, Beck

Why you should pay that penalty, if that was mortgage company mistake then the liability should go to them.

I can insist you not to pay that penalty.

adonis · Posted: Tue Feb 28, 2006 8:44 am Post subject: re

Why dont you ask about all the document used with that mortgage company.

I think that can be handy to you.

adonis · Posted: Tue Feb 28, 2006 8:46 am Post subject: RE

What i can make it out is - lender is playing some kind of game with you, he is trying to take advantage of your situation.

All he is trying is to take some money out from your pocket.

Samantha · Posted: Tue Feb 28, 2006 11:01 am Post subject:

Hi Bily,

Welcome to MortgageFit Forums.

You can ask for all the relevant documents from the mortgage company against the claim.

You need not make any unnecessary payments which you find is not correct. You can always question on the document you think has been done with a mistake.

If you find it difficult for you to understand the problem in the papers, you may take the help of a local attorney.

God bless you.

For Mortgagefit,
Samantha

ckalvesmaki · Posted: Tue Feb 28, 2006 12:02 pm Post subject: Prepay Addendum

At closing an agreement was signed that if there was a mistake in the docs that you would sign any corrected docs not affecting rate or APR. It's in all loan packages and there isn't a date that it will cancel itself out. You may have the wrong addendum but it's not going to change the terms of your loan or payoff......They just need to send you a corrected one. You can and maybe should seek a consultation with a real estate attorney but I think the end result because of the addendum will be the same.......an agruement is going to be made that........what if I don't sign the corrected addendum.......well the current lender does not have to release the lien and the title company will have to pay what's on the payoff demand in order to convey a clean title to the buyer.

Guest

there are no problems with the terms, except for the prepayment penalty addendum which stated at top of form (fixed rate note).
whereas the mortgage was for an adjustable rate. I was hoping that this little error would be the loophole we could use to avoid paying $5000 penalty. How do you get the title company involved in this error?

ckalvesmaki · Posted: Tue Feb 28, 2006 6:39 pm Post subject:

The title company will have to honor the payoff demand they get from the lien holder in order to convey title from the seller to the buyer. So if they get a payoff demand that includes the pre-pay that is what they will have to pay.

Guest

Where can I refi without paying off my pre payment penalty?

jerry · Posted: Thu Mar 30, 2006 10:43 pm Post subject: RE:

Hi,

Quiet frankly speaking the question you are asking is not practical. Most of the lender won't allow you to refinance without you paying the pre-payment penalty. But still you may look around as there are some exceptions in everything.

Thanks,
Jerry

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