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How can you get out of a home loan prepayment penalty?

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2008-10-31 07:56:53
2008-10-31 07:56:53

If this prepayment penalty is written into the contract, no way can you get out of it. Usually, though, the prepayment penalties last about 3 years. At the end of the 3 years, the prepayment penalty will be gone. Also, some companies will forgive the prepayment penalty, if you get your new mortgage through them if you are selling your current house and buying another house. Prepayment penalties are usually for paying off the loan, or paying big amounts back on the loan. Your contact will specify what the prepayment is for.

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Yes, as long as there is equity to use. The lender that will do the home equity loan will have figured the prepayment penalty into the 1st mortgage balance just in case you do sell your home before 2 yrs. are up. The lender will ask for specific paperwork including your mortgage (promissory note) so they will know about the prepayment penalty.

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If you have prepayment penalty clause in your agreement with lender, then if you pay off the entire loan amount with in the maturity period of your loan. You have to pay some amount of money as penalty. If prepayment penalty is not applicable means, even though if you pay off the the loan amount with in the maturity period. You need not pay any penalty.

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To discourage the borrower to payback a loan to quickly

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Perhaps. The difference in the prepayment penalty and the amount of interest paid until the loan is satisfied is a major consideration. If the difference is small,early payoff might not be the best option.

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If you have equity in your home you can refinance at anytime.... Make sure your current home loan does not have a prepayment penalty. Next you would need to consult a mortgage lender: http://www.fixed-mortgagerate.com/mortgage_loan

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It depends upon whether or not you want to pay the prepayment penalty. You would need to consider the amount of interest that would be charged versus the amount of penalty incurred for paying the loan off early, before making a decision.

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That is going to be a State by State thing. But you will not find a Prepay penalty on an FHA or VA loan and typically you will not find them on Conforming loans (Fannie/Freddie stuff)

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The state of Pennsylvania requires that any prepayment penalty be stated in the contract. When the prepayment penalty is stated in the contract it becomes legal.

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To discourage borrowers from paying their loans back too soon

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No the penalty is not deductible on a home loan. Only the interest that is paid. The penalty is considered as a late payment not interest. good luck.The initial answer to this question is incorrect. Prepayment penalties are sometimes deductible if the payment is made out of pocket as opposed to being rolled over into the new loan. It is not ever considered to be a late payment. It is considred interest. Even if the amount is rolled over into a new loan, you may be able to pro rate the deduction over the term of the loan. The bottom line is that depending on your particular circumstances, the prepayment penalty might be deductible.PLEASE consult a tax consultant for the most up to date 2008 tax information. and also PLEASE remember that on the internet, never ever take the advice of one so-called expert. check. check and double check everything.Here is the info directly from the IRS.http://www.irs.gov/publications/p936/ar02.html#d0e770Mortgage prepayment penalty. If you pay off your home mortgage early, you may have to pay a penalty. You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan.

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I am not 100% certain of the answer, but in most cases we can deduct the interest, but not usually any fees associated with the mortgage. I am assuming you can't deduct it. Consult a tax professional. I have a suggestion for those who are thinking of paying off their mortgage when a prepayment penalty is in place. I used to be in the mortgage business. Suggestion: Prepayment penalties are usually around 5%. So, if you have a balance of $10,000 the prepayment penalty would be $500. There is a very simple answer for avoiding most of the cost of prepayment. In your next payment pay everything but a portion. Leave a balance of $100 or $500. In most cases the prepayment penalty is calculated on the balance. Make your your final payment of $100-$500. This way your penalty will only be a $5-$25 saving you a lot of money. Then the tax issue is really of no consequence.From IRS Publication 936: "Mortgage prepayment penalty.If you pay off your home mortgage early, you may have to pay a penalty. You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan." I paid a prepayment penalty and my year end interest paid for the loan included the penalty.Hope that helps. Navywings 17:21, 26 May 2008 (UTC)

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yes - you can refinance an auto loan at any time. You will want to make sure you current bank does not charge a prepayment penalty though.

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One of the best ways to reduce mortgage payments is to do a mortgage refinance as long as the new mortgage interest rate is at least two to three percent lower than the current rate and there is sufficient equity in the house. It's also important to a make sure there is no prepayment penalty on the existing loan. A prepayment penalty is a fee charged by the lender if a mortgage loan is refinanced before the prepayment expires

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yes, unless in your state or the state of the lender there is no prepayment penalty. It may not be included in the verbiage on the Note--to see if it is mentioned there. It may have different information than the page titled "Prepayment Penalty."

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The easiest way to find out if you currently have a prepayment penalty is to dig out the paperwork you have from when you signed your final paperwork and look for your mortgage note. There usually will be wording in your note that outlines the prepayment penalty terms. Use a calculator like this one from the acalculator.com to see your savings.

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You need to compare the cost of the repayment penalty and the benefits of having the loan (such as deductible interest) vs. the benefits of paying off theloan such as increase cash flow. Do that analysis and determine the best use of your money.

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You can refinance your mortgage anytime you want to. There is no minimum time before you can refinance. That being said, you do need to be aware of any "prepayment penalties" or clauses. Some loans ( especially sub prime ) will have a prepayment penalty. If you refinance your existing loan before that pre payment period is over then you have to pay the prepayment penalty. These penalties can be as much as six months worth of interest. Check your original note to see if you have this penalty. If you do have a PPP then you need to weight the financial benefits of refinancing against the penalty. There are some cases where such a transaction still makes sense.

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Unless there is a tax benefit that you want/need, you should retire a loan as soon as possible. I am assuming that there is no prepayment penalty, which may impact your decision. It is costing you money (in interest) while you have the loan.

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It depends. One has to look at what the interest rate is, the amount of the term remaining, the amount of the prepayment penalty and the cost of the source of funds to pay it off. There is no one correct answer, sorry.

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It would depend on whether the savings gained by "retiring" the loan outweighed the disadvantages posed by the pre-payment penalty. Most loans have pre-payment penalties which expire after a short period of time. On mortgage loans, the typical pre-payment penalty runs 1, 3, or 5 years.

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First you would have to determine if you have a prepayment penalty on your current home. In case you dont know, you can find that out if you call your mortgage holder. If there is a prepayment penaly it would be best to wait the period out in order to avoid the hefty fee. If you do not have a PPP, or would like to pursue despite the fee, you can do so at any time. If you need help with your transcation feel free to contact me @ 214)607-1445.

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Before refinancing your home, one should consider if refinancing is the right option for them. Refinancing is intended mainly to lower one's interest rate. However, there are some things to be considered when doing this. Refinancing pays off the current loan and creates a new loan at a lower interest rate. Before doing this, the homeowner should know if their current mortgage has a prepayment penalty clause. This means that if they pay the current mortgage early they will have to pay a fine or penalty. This might make refinancing not worth it.

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If you mean how can you reduce your monthly payments, you can refinance at a better interest rate or refinance for a longer term. If you mean how to amortize your loan over a shorter period, pay an extra amount on top of your standard loan payment. Beware of early payment penalties if you pay off your loan early. Check with your lender to be sure there is no prepayment penalty.

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When a loan is modified, usually fees and interest are added to its balance, effectively increasing it That can produce negative prepayment rate

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Right away as long as the lender will ok it. Some want a year some want 6 months some do not care. Read your note to make sure you do not have a prepayment penalty. It can be high. 6 months interest on the full amount of your present loan.


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