What is a loan prepayment penalty and is it generally advisable to get a loan that has one?
A prepayment penalty on a loan allows the lender to charge a borrower additional interest, typically six months worth, when a loan is repaid during the penalty period, which is usually somewhere in the first three to five years of the loan. If a loan does have a prepayment penalty, this is clearly stated within the mortgage disclosures, mortgage note or prepayment penalty rider to the note. The advantage of taking a loan with a prepayment penalty is that it could carry a lower rate of interest or you may be permitted to take a loan without paying for non-recurring closing costs. Boulevard Mortgage Company has no prepayment penalties on any of our Conventional, FHA or VA loans. Some non-conforming & No Doc loans may have a prepayment penalty and we will tell you this when you apply.
A prepayment penalty on a mortgage allows the lender to charge a borrower additional interest, typically six months worth, when a mortgage is repaid during the penalty period, which is usually somewhere in the first three to five years of the mortgage. If a mortgage does have a prepayment penalty, this is clearly stated within the mortgage disclosures, mortgage note or prepayment penalty rider to the note. The advantage of taking a mortgage with a prepayment penalty is that it could carry a lower rate of interest or you may be permitted to take a mortgage without paying for non-recurring closing costs.
A prepayment penalty on a loan allows the lender to charge a borrower additional interest, typically six months worth, when a loan is repaid during the penalty period, which is usually somewhere in the first three to five years of the loan. If a loan does have a prepayment penalty, this is clearly stated within the mortgage disclosures, mortgage note or prepayment penalty rider to the note. The advantage of taking a loan with a prepayment penalty is that it could carry a lower rate of interest or you may be permitted to take a loan without paying for non-recurring closing costs.
A prepayment penalty on a loan allows the lender to charge a borrower additional interest when a loan is repaid during the penalty period. If a loan does have a prepayment penalty, this is clearly stated within the mortgage disclosures, mortgage note, or prepayment penalty rider to the note. It is not advisable to take out a loan that has a prepayment penalty. There is enough competition out there for almost anyone to qualify without having to endure a penalty for early payoff. Generally, prepayment penalties will be in effect from one to five years. They can cost an individual between 1 percent and 5 percent of the loan balance at the time of payoff. Therefore, it usually will make no financial sense to do it. It would obviously be a high price to pay to get out from under a loan obligation unless you had no other choice. The best way to avoid such a problem is to obtain financing from a lender who does not charge a prepayment penalty.
A prepayment penalty on a loan allows the lender to charge a borrower additional interest, typically six months worth, when a loan is repaid during the penalty period, which is usually somewhere in the first three to five years of the loan. If a loan does have a prepayment penalty, this is clearly stated within the mortgage disclosures, mortgage note or prepayment penalty rider to the note.
