Prepay Penalty!?
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In todays market many consumers are concerned with having a prepay penalty. However, if youre given an option of removing prepay, it may not be the solution you want. The lower the prepay the higher the interest rate, and if you dont plan on selling in the prepay term then your giving up a large portion of your money. The best option is to compare the monthly payments for the different options, and then seriously consider if you will actually be selling.Many states have laws governing prepayment penalties. Check with your states banking dept or consult your mortgage professional for more information on prepayment penalties.
If you currently have a mortgage that may have a prepayment penalty, you can review your note to see the amount and duration of your prepayment penalty. You can also call your mortgage loan servicer for this information. Your mortgage professional can help you decide if it still makes sense to refinance.
The most important aspect of reviewing in terms of a pre-payment penalty is the amount of the penalty. If you have to have a pre-payment penalty then a 1% prepay penalty is about the best one to have. If you have a prepay penalty that is higher then that you may want to shop around and see what else you can find. A 1% prepay penalty means that if you pay off your mortgage loan within the specified number of years, generally they will not last any longer than 5 years, then you will be penalized 1% of your original loan amount. Therefore, if you had a 2 year prepay penalty on your $90,000 mortgage and you refinance your home after living there for 12 months, you would be penalized $900 for paying your loan off before 2 years has gone by.