Is There A Pre-Payment Penalty On Mortgage Loans?

Have you ever wondered…would you like to know…is there a pre-payment penalty on mortgage loans? If so, read on and find out the answer to this query!

Is there a pre-payment penalty on mortgage Loans?

Ever wondered if there is a pre-payment penalty on mortgage loans? The answer is…yes, sometimes. The truth is that it really depends on the mortgage agreement as to whether or not a pre-payment penalty exists. The good news is that for those who do have a pre-payment penalty, that penalty is usually only in force for a set amount of time—say, the first two years of the loan—or under specific circumstances—in the case of a refinancing or sale of the home.

Why would there be a pre-payment penalty on mortgage Loans?

There are many reasons why a lender would include a pre-payment penalty on a mortgage. One is that the borrower is a sub-prime borrower. In such an instance the risk of that loan refinancing or selling right away is higher than for those with better credit, meaning the lender wouldn’t make as much money off the transaction. Another reason is that, in today’s day and age of mortgage scamming, the lender is trying to pull a fast one on the borrower by adding a pre-payment penalty because he or she priced the loan originally without a penalty clause, and by having that clause as part of the contract, the lender can sell the loan on the secondary market for double the original price.

Is there a way to avoid pre-payment penalties on mortgage Loans?

It is possible for some borrowers to avoid contracts with pre-payment penalties in them. First, borrowers should ask their lenders, “Is there a pre-payment penalty on mortgage loans you recommend to me?” Also, asking the lender if buying out the penalty is an option sometimes works. This will cost a point or two at closing, which is tax-deductible, but may be well worth it.

Is There A Pre-Payment Penalty On Mortgage Loans?

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