Ways to Avoid Mortgage Prepayment Penalty

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Mortgage prepayment has its own advantages as well as disadvantages. While it does get you your own home in a time shorter than you had signed up for, it could also get you into trouble with your mortgage lenders. With a mortgage prepayment plan you can actually get rid of a substantial part of your debt in lesser time than you had agreed upon. This kind of an agreement does work in the favor of the debtor but it may not be the case for your lenders. The reason behind this is that since you are paying ahead of time, the mortgage lenders are receiving lesser interest than you signed up for. This is the simplest reason why lenders may charge a prepayment penalty.

What is a mortgage prepayment penalty?

This is a prerequisite that is present in your mortgage contract which lies down that must pay a penalty in the event that you pay up your mortgage fully ahead of time. This penalty may be charged in two ways. The lender could charge this penalty as a percentage on the amount of money that is remaining or could charge you penalty based on the number of months that may be remaining in the term of your loan. This type of penalty can be charged if you are selling your home or are seeking to refinance your mortgage loan. If your contract contains a prepayment penalty clause then it may be considered as either hard or soft. A hard mortgage prepayment penalty states that you cannot make any of the transactions without being charged a penalty. Only in case of a refinance are you subject to a soft mortgage penalty.

How can you avoid mortgage prepayment penalty?

Mortgage penalties can actually be avoided, decreased or even eliminated with time. In fact, theprepayment penalty could be removed completely after five years. You are free to make a payment that goes up to 20% of the balance on your loan in one year. This way you may be able to avoid a prepayment penalty. If you have the option it is advisable that you take it if you are serious about avoiding the penalty. Sometimes lenders offer borrowers who have a good credit rating or those who have a high down payment or maybe both, could be offered an option of penalty that could again help them decrease your rate of interest. This in turn will lower the monthly payment that you make towards your loan.

Sub-prime mortgage borrowers who do not have a good credit or have made low downpayments or are both of these, then the lender may like it for you to have a prepayment penalty laid down in your contract. Lenders are clever to realize that if your credit ratings show improvement you may want to refinance your mortgage to get a lower rate. This is not a good thing for the lenders because they will be incurring losses due to this reason.

Mortgage lenders do not want to incur any losses for lending you the money to buy your house and this is why they lay down the clause of a penalty on sub-prime borrowers who are likely to refinance in the future. It is true that you that you may not be able to avoid the penalty altogether if you want to refinance in the future but you can still negotiate some of the terms of the mortgage prepayment penalty. You could try to negotiate that this penalty only applies for a fixed period of time and that it should not be applied when you sell your home. This may be your only chance to put it in your favor.

Description: Avoiding mortgage prepayment penalty may not be very easy but it is still possible. Find out how you can avoid or minimize your penalties.

Author’s bio: Jonny  is a web writer who writes several articles on the mortgage industry. Find his articles in easyfinance.com.

33 Comments

  • Porter says:

    My fiance and I wish to purchase a house or condo together each year. We’ve 200k saved. We reside in Toronto. We have a dual earnings well over $125k. Will it be easier to purchase a small condo to prevent requiring a home loan and rates of interest? I am unclear about how rates of interest work. What is a common rate of interest, and just what exactly will it apply interest to? Cumulatively, just how much could we save by forgoing a home loan on say, a 500k house that people would want a home loan on, when we just purchased a small condo for $250k, in cash? I am thinking we purchase a condo, we wouldn’t desire to make monthly obligations for rent or mortgage, and that we could save to purchase a $500k house in under ten years – we’ll curently have over 200k, and also over 10 years we’re able to save A Minimum Of 30% in our earnings, and we’d never need to bother about having to pay rates of interest, or costs.

    But all this really is dependent how much rates of interest are to start with. If the rate of interest is 3% does which means that overall we’ll be having to pay 3% on the top of the items our mortgage is? Therefore if we’d a 300k mortgage, do 3% rates of interest mean we’d finish up having to pay $309k? I simply do not understand the way they work.

  • Sandy says:

    Have you got any ideas to see others?

  • Chery says:

    My broker was tossing out these terms and that i ,not savvy within the loan department, just took in and agreed. Having a credit rating of 680 he’s attempting to finagle a much better refi for all of us. A choice 5/1 ARM apparently is the greatest but we can not secure it. Now he really wants to perform a $560k and $70k loan fixed. Wise decision? We have to lower our obligations in some way. He’s trying more compact banks.

  • Jesus says:

    Hi, we are the initial time home purchasers buying a brand new home. The builder has preferred loan provider who offered us following particulars on our jumbo loan:

    1. 5/1 ARM interest only : On 80% the speed could be 6.275%

    2. On 10% (second mortgage) the speed could be 8.3%

    We’ve excellent credit. Are these figures sufficiently good to choose this loan? The builder is providing 15k served by preferred loan provider.

  • Lucius says:

    I’m looking for a way to repay the house earlier, but I am certain whether I ought to trust any one of this mortgage program available on the market.

  • Fabian says:

    Im 22 and also have been saving for some time to purchase my first home when i still live aware of my parents. i’ve now had a decent deposit and wish to start considering a home loan. The truth is though that i must try to make a little of cash or simply work my in place the home ladder just a little by purchasing a home that requires some work, and focusing on it within my free time hopefully sell and perform the same again a couple of occasions within the next couple of years. So just wondering the way i can get on when it comes to a home loan when i shouldn’t finish up having to pay a sizable early payment fee. If anybody knows of the appropriate mortgage deal or other info that might be great. Ltv of 80-90% for the way much i reserve for that work that requires doing,

    Thank you ahead of time.

  • Buddy says:

    I’ll get this to quick. Do in order to some conditions we fell behind on our mortgage. Our loan provider is country wide. We applied for a financial loan modification. How frequently do these really materialize into something decent? There exists a 100% funded sub-prime loan by having an 80/20 ARM and early repayment penalty. (A bit of trash loan I understand, we all know better now) Country wide wants more financial info for the situation. We’re still battling using the obligations. We’re just beginning to obtain traction again financially but they are in serious delinquency. There’s no equity , mtss is a Florida home, we’ve got some cash although not enough to create it current. Advice anybody? Do not lecture around the economy or even the “housing crisis.” This really is of a loan mod.

  • Elisha says:

    I’m searching in a new house buildings and also the builder is D.R.Horton Chicago. They are saying when we buy houses in one of there towns and go ahead and take mortgage loan after that own financing affliate(DHI Mortgage), they can give 20-30K from the list cost.

    I checked using the listing agent plus they stated approximate rates are 4.75% together.

    1) Could it be always beneficial to obtain a mortgage loan after that suggested mortgage, therefore we could possibly get the 20-30K From the list cost ?

    2) Allows say if another loan provider Abc is giving 4.75% which same contractors loan provider(DHI) is giving for 4.75% then could it be worth choosing the DHI as we are obtaining the 20-30K From the list cost of the house we’re purchasing ?

    3) Can there be any catch within the offer ?

  • Aletha says:

    im a couple of grand from having to pay off my truck. i known as today and also the bank stated i’d possess a 100 dollar penalty for having to pay them back early. well, i had been thinkin about having to pay 1900 dollars and merely departing the relaxation til my final obligations due within three years. my real question is, would i be best having to pay the entire factor off and merely accepting the penalty, having to pay the majority of my loan like pointed out above and waiting, or having to pay maybe 1 / 2 of it and invest another half within an ira, or you know, tell me lol. can there be in whatever way i’m able to circumvent the penalty? Thanks

    adam

    im payed obvious as much as august 08′. the borrowed funds is thru huntington national bank. ill most likely just use there and request a couple of questions. It simply agitates me which i obtain a 100 dollar penalty for really having to pay for something where a lot of people defualt on ther financial loans. oh, this really is in ohio incidentally. appreciate the data everybody!!

  • Marco says:

    I’ve $100,000 in cash and wish to be aware of wisest think related to it. Some people say I ought to repay a part of my house mortgage, with a $323,000 balance and 27 years left. Presuming this is the wisest factor to complete, is it more beneficial to lower my monthly obligations, or have them exactly the same and shorten the amount of time which i owe?

    Incidentally, I’ve not one other financial obligations (no vehicle / charge card debt).

  • Magnolia says:

    i wish to release money from the house, but since i let they wont allow me to have greatly, and so i have made the decision to market, however i have annually of fixed interest rate left, mortgage is by using Northern rock

  • Winford says:

    Could it be a typical practice for any Canadian bank to charge a $10,000 penalty to interrupt a home loan? A few I understand is parting ways and selling their house. The financial institution will hit them a $10,000 penalty to get away from the mortgage! Anybody heard about this before? If one of these buys another home inside a certain period would they avoid this?

  • Hermelinda says:

    There’s an ARM at this time at 6.125. We’ve only been in the home for five several weeks but we actually desire a fixed interest rate.

  • Fallon says:

    The house may be worth 180k or even more. My loan onto it is 151k.

    My credit rating is approximately 637-644

    Im in Condition of Texas

    My purpose is gloomier my obligations (1156 plus taxes presently)

    I would like a non earnings mentioned loan. I wish to attend a leg or perhaps a fixed.

    I shouldn’t run my credit everywhere. Can anybody guide me right path ?

  • Jackelyn says:

    for instance allows say you are taking out financing of 100,000 dollars.

    and you are by having an extra 20,000 dollars after.

    utilizing an amortization table. are they going to just re-review it for an 80,000 dollar debt. or are they going to go and knock the key from the first 8 or nine years becuause you are able to afford to repay the key of this period of time. sorry if this sounds like unclear nevertheless its hard that i can explain.

  • Pedro says:

    I’m considering different mortgage.

    End up with confused by a wide variety of types of them.

    Do you know the variations?

    As planning to obtain a 300K mortgage, and likely to remain in the home not less than five years.

    What mortgage may be great for us?

    30yr fix

    5/1

    7/1

    why there’s 5/1 ARM?? What’s the different between each one of these?

    thank u

  • Brendon says:

    I already deposited my cash with an inventory agent, were built with a home inspection and my real estate agent already did a title search. The mortgage company all of a sudden informs me he can’t borrow the money because my personal bankruptcy discharge is under annually. What’s my next option? Shall We Be Held titled towards the refund of my deposit money?

  • Violette says:

    Also wondering exactly the same regarding overtime costs

  • Francisco says:

    We’ve mortgage around the condo we live for the reason that may be worth ok now what we owe onto it.. maybe rather less. Our dilemma is if to market or place it out. We’ve student financial loans and charge card balances. Additionally there exists a early repayment penalty for just one more year when we get free from the borrowed funds, it’s about 9k penalty. My hubby really wants to place it out, however i am afraid that we’ll not make the most of selling it now and purchase another spot for less therefore we can take shape equity on the better neighborhood. We’ve 2 youthful children younger than 1 and wish them to go to a better school district too. To increase the issue, we’re running have less HOA reserves because other models are foreclosures and therefore are delinquent on HOA obligations.

    You will find multiple expensive projects that should be completed to keep up with the complex, so more income will have to be obtained from the HOA.

    So, we sell now and take are we able to can, spend the money for penalty or hold back until the economy rises again. I was initially likely to re-locate in five years to some better school district, but with the HOA problems and debt we have, we do not get sound advice. To market and proceed to a condo to pay for bills, sell and purchase a brand new place or otherwise market it all and place it out. Many thanks, we greatly be thankful!!

  • Vashti says:

    I initially thought I’d remain in this house a couple of years but we made the decision on remaining. I have elected to not re-finance at this time because my current ARM rates are so attractive. Thus, here are a few additional particulars.

    1. The present 15 year mortgage is 5.875 to sixPercent. (This is my preference when i are designed for the additional payment per month in comparison to some thirty year mortgage)

    2. I have heard there’s help to engaging in a thirty year mortgage and having to pay off a lot of principal every month as you can see fit. (my concern this is actually the rates are greater inside a thirty year mortgage)

    3. I presently pay PMI on my small current mortgage. This sucks, and I wish to avoid the following time I re-finance. What options must i consider by doing this (home loan, etc)? I have only experienced this house five years, so I have not arrived at the stage where the PMI might be waived.

    Thanks ahead of time!

  • Jeniffer says:

    I possibly could put lower up to 15% but minus the better. I wish to ensure that it stays for any very long time like a apartment.

    I’ve 760 credit score. I do not own any property at this time around. I haven’t got any earnings documentation. Will this be considered a problem? If that’s the case, what options have i got?

    I would like my payment per month to become low but I’m not going negative amortization. What exactly are my options & just how much monthly shall we be held searching at? Which strategy is the easiest method to go?

    Would you be specific with amounts?

    Could I recieve all of the options which can be found in my experience? Thanks.

  • Denver says:

    I’m 23 years of age and that i just began my which you may about 6 several weeks ago. I make 40,000 year and that i have 23,000 dollars staying with you at this time. I’m attempting to choose how much i ought to use in my deposit, and just how much I ought to keep staying with you to have an emergency fund. Once I purchase the house my total monthly expenses is going to be around 1700 including mortgage, bills, utilities, groceries, gas, vehicle payment….everything. The number of several weeks price of savings must i retain in my emergency fund, and just how much must i use in my deposit. Home is around 115,000.

    Thanks.

  • Parker says:

    I know alot has changed through the years on FHA loans, like not being able to sell but you can now. I was wondering if it could be refinanced in say 10 years. I’m almost sure my broker said that it could.

  • Jerry says:

    My sister is within a tought situation, She’s her home available on the market b/c they are able to no more pay the mortgage on the top of the large property tax increase. The issue begins with the truth that because of a early repayment pentaly of 20% & the p-creasing market she can not afford to market the house b/c she’d be over $15,000 negative (so essentially if she doesn’t bring that to closing she’ll not have the ability to close). She really does possess a very interested buyer & when the financial institution would waive the pentalty she could leave free and obvious. This is her hope. Otherwise she’ll have either to leave or file bankrupcy b/c they are unable to make anymore obligations. My questions are, would the borrowed funds company be prepared to utilize her concerning the penalty? What’s involved with declaring bankrupcy (the house is their only loan, no vehicle financial loans or charge cards). The number of obligations does she have to miss b/f they are effective w/her or begin to foreclose? Can they take everything in your home?

  • Ma says:

    Exactly what is a mortgage which is the very best factor for shopping..I really like shopping and that i feel it’s good for me personally…

  • Chang says:

    I’ve about $10,000 in bank for any home, i’ve a good credit score, and i am approved for a mortgage of $80,000. I’m not sure what type of loan is much better for me personally? I’m not sure Whether it’s a much better idea to purchase a fixer upper or something like that that’s already in good shape? Has anybody had issues with homebuying i ought to learn about? Worthwhile links with details about home purchasing? thanks

  • Elza says:

    I am confused just a little and want some assistance. Personally i think i have to re-finance and Secure a set rate, but my real question is wether the current 5yrs of house obligations all visited waste given that they all mostly visited interest? I owe like 200K left in your home, I’ve already compensated 81K in 5yrs of great interest! Where will i move from here? I want some guidance PLEASE!!!!

  • Ursula says:

    What must i learn about purchasing a house?Just how much must i spend? The amount of financing must i remove? Just any information of methods you worked out the procedure could be great! Thanks!

  • Tammy says:

    We presently come with an 80/20 two year fixed arm with rates of interest of 8.725 and 9.8. Our loan is scheduled to totally reset on February 28, 2008. The entire from the financial loans was 99000.00 and also the house was initially evaluated at 110000.00. I have no idea that we’ll even have the ability to re-finance, and when just how much it will ended up costing up front. We have a early repayment penalty therefore we cant re-finance prior to the scheduled totally reset date. We have never been late on our mortgage and would still have the ability to easily pay the mortgage whether it totally reset. But we want to re-finance if whatsoever possible. If there’s any information or advice anybody can provide, I’d greatly be thankful.

    Thanks everybody. We reside in Dallas, Texas and that i dont think our value must have gone lower. Im just wishing it’s enhanced. We’ve were built with a new roof plus some new doorways installed. We’re also searching in a garage conversion (into 2 sleeping rooms) in The month of january to hopefully aid in increasing our value. I welcome more ideas and advice.

  • Rhett says:

    I requested Deed instead, however the Loan provider delay it and went only for the Foreclosures. I’ve no clue what to do with my loved ones within our Prince William county in which the service are extremely bad. I known as different amounts of HUD in Electricity and Veterans administration however they dont care or help whatsoever !! I known as management of your capital however the stuff wasn’t friendly . I’ve no clue what to do or how to proceed ..Forgive me to state that some occasions I dont beleive I’m residing in the finest country on the planet ! The help in listed here are so bad evaluating with Europe or any other places

    I simply wanna then add factor for individuals who send pathatic racist messages confirmed my claims of these a poor services in US. I’ve been all of a sudden discharge from my good project for a really stupid purpose that was later assured like a large mistake from the organization. I didn’t givin up and send my resume for hundered jobs, in spite of my qualifications and great encounters I still since a lot more than six several weeks got no job. I listed the house on the market a lot more than 3 several weeks and also got no offer and spent my savings. My familly incorporated my child don’t have any medical health insurance whatsoever inside a country where its hospitals request for costs in the patients and chase you using its bills!!! The misjudgement originated from others not me , the one that destroyed my company and family was stupide new manager who later was drawn from work due to his bad managemnet from the organization. Finally, in Europe treatment methods are free just like education and also the services so freindly and civilized and treat one another as human.

  • Dorsey says:

    i Question When The Lender May Charge A Early repayment PENALTY Should You Foreclosures. THE Documents States IF YU Re-finance OR SELL The Home….Absolutely nothing ABOUT Foreclosures.

  • Elinor says:

    We need to get financing to repair up our home we intend to sell in 9 several weeks. A home is in nice condition once we changed everything and renovated each room except your kitchen which has very outdated cabinets/countertops. We will replace all cabinets, counters, fix our wood flooring within the family room and fresh paint most rooms to freshen them up. We’ll need under $10,000 to gain access to. Exactly what is a equity loan and will it be better to obtain a personal bank loan or equity is alright?

    We have possessed the house for six many refinanced over four years ago for any lower int. rate. We will repair the relaxation of the home then sell.

    My home is PA. We compensated about $104k for that house. We fixed up and owe about $79k onto it yet. the marketplace for houses locally are actually high at this time. A home across from us 60′s inside, bed room went for $145k. Ours is 3 mattress, 1.5 bath, one bay attached garage, central air, 2 fire places, wood flooring in family room, new carpet in most three sleeping rooms, new bathroom with health spa tub, laundry room, unfisnished basement on 1/2 acre situated inside a spread out development. We are speculating minimal we’d get is $140-150k.

  • Magnolia says:

    mortgage banking

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