Comments on: Choosing a Pre-Payment Penalty?

By: morganb

morganb — Mon, 08 Jun 2009 23:32:26 +0000

Hi Ann,

It really depends on your mortgage note. I'm not a legal expert so I can't give you the right answer. I would talk to an attorney that specializes in TILA and real estate law and inquire with them. Loans that are deemed predatory have prepayment limits that are restricted to 36 months. However, an attorney can give you more insight. Good luck!

By: morganb

morganb — Mon, 08 Jun 2009 23:32:26 +0000

Hi Ann,

By: ann mendoca

ann mendoca — Mon, 08 Jun 2009 16:20:02 +0000

I have a 5-year prepayment penalty. I am four years into the five. I want to refinance and cannot even through my present lender because all I have is a servicing company. Don't really know who my lender is. I live in California. Is this legal in California?

By: ann mendoca

ann mendoca — Mon, 08 Jun 2009 16:20:02 +0000

By: Fitz

Fitz — Wed, 26 Mar 2008 01:33:30 +0000

Regarding prepayment. Suppose you give extra payments every month with a notation that this is principal only? Are you paying the balance of the mortgage at the back end or will the bank reschedule the mortgage every month so that less interest is due in each ensuing month? On the one hand, reschedule will be preferable.On the other hand, most of the total interest on the loan is paid in the first half of the loan, so extra monthly prepayment does not make that much of a difference in the total interest paid. So the bank does not really lose much, if after the first half you accelerate your payments with extra payments to reduce the measly interest due in the second half of the mortgage. They get their principal back early to reinvest and most of the interest.

Can you comment on how we can make sure the extra payments reduce the ensuing interest due?

By: Jenna

Jenna — Sat, 01 Dec 2007 02:37:11 +0000

My husband and I took a prepay on a 5 year fixed interest only ARM. The ppp period is only 1 year, so we opted for the 6.375 with a ppp, and apply an extra 100 dollars a month that we are saving (at least) to our mortgage. There’s no chance that extra 1200 a year will amount to 20 percent of our total loan amount. That seems reasonable, right?

By: Alan

Alan — Fri, 16 Nov 2007 02:29:19 +0000

If the loan docs provide for prepayment penalty if the the principle is “paid in full” within two years, is it advantageous to prepay most of the principle within the two years and then the rest after 24 months? This is the wording in Wachovia’s docs for a second mortgage. The difference between no prepayment penalty is .375%.

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Wed, 17 Oct 2007 02:31:43 +0000

[...] Blown Mortgage writes Choosing a Pre-Payment Penalty? [...]

By: Morgan Brown

Morgan Brown — Fri, 12 Oct 2007 17:11:36 +0000

Ann – I updated the post, thanks!

Russ – I agree, I think you’ve nailed it right on the head. I would love to know the percentage of the mortgage equity withdrawal dollars that went to prepayment penalties from people cashing out multiple times after taking a PPP.

By: Russ

Russ — Fri, 12 Oct 2007 16:25:41 +0000

I don’t see anything inherently wrong with prepayment penalties as the cost to lenders is significant when consumers (or LOs) churn their loans quickly.

The problem we ran into was having prepayment penalties that are longer than the initial terms on a loan. Why anyone would agree to a 3 year PPP on a 2 year adjustable rate with a 6% margin is beyond me. Why lenders even thought of this monster also has me baffled.

I can see the boardroom meeting now:

“The consumer can barely afford the initial rate, so let’s lock them in to the loan so that when the rate adjust and the payment is even higher they can’t get out of the loan without paying us six months of interest. Brilliant!” I am sure the guy that came up with this concept got promoted to Senior VP at some lender.