Hard prepayment penalty
applies to the loan throughout the specified term of the loan. If you
refinance, sell the home or even make additional principal payments, you
will most likely trigger a prepayment penalty.
The terms of your prepayment penalty can be found in the Mortgage Note
that you signed at closing. There should be a specific section that
explains how long the prepayment term is, what the penalty amount is,
and what is considered prepayment. Often times other than paying the
loan off in full, if you pay down the balance more than 20% in any 12
month period it will be considered prepayment and you will be assessed a
penalty.
As long as you plan to live in your
home through the prepayment period you have nothing to worry about. If
you plan on leaving before that time ask your mortgage broker if the
lender will waive the pre pay in exchange for a higher interest rate.
If you have a hard prepayment penalty on your loan and you are
considering refinancing your home, consult your current mortgage lender
to find out if they will waive the prepayment penalty for you if you
decide to refinance with them. You can also try contacting your personal
mortgage professional who arranged your current loan for you to see if
there is anything that they can do. If the lender or mortgage
professional are unable to do anything to get the prepayment penalty
waived then you should look long and hard at the numbers and decide if
having to pay the prepayment penalty is worth it to still refinance.
Beware of prepayment penalties that are 6 months or 12 months worth of
mortgage interest. These prepayment penalties can be outrageously high
and should be avoided at almost all costs.
Make sure you compare interest rates with and without a prepayment
penalty. Typically accepting a prepayment penalty will give you a lower
interest rate. As long as you are not planning on moving within the term
of the prepayment penalty, it may be beneficial to you
