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If a loan has a prepayment penalty should you still pay it off?
Wiki User
∙ 15y ago
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.
Wiki User
∙ 15y ago
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How can you get out of a home loan prepayment penalty?
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.
What is purpose of a prepayment penalty in a loan agreement?
To discourage borrowers from paying their loans back too soon
Can you take out a home equity loan if you have a prepayment penalty if you sell your home before two years after you purchase it?
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.
Can you refinance an auto loan before a year?
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.
How soon can a mortgage be refinanced?
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.
How can you get out of a home loan prepayment penalty?
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.
If a loan has a prepayment penalty attached to it could it still be viable to retire it and why?
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.
What does a prepayment penalty that is Not Applicable mean?
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.
Prepayment penalty on a fixed rate Was there a new law passed abour prepayment penalty?
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)
What is purpose of a prepayment penalty in a loan agreement?
To discourage borrowers from paying their loans back too soon
Can you take out a home equity loan if you have a prepayment penalty if you sell your home before two years after you purchase it?
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.
Should you retire a loan towards the end of its term or much before it?
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.
If a loan has a prepayment penalty attached to it would it still be viable to retire it?
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.
What is the purpose for prepayment penalty?
The purpose of a prepayment penalty is to provide lenders with compensation for the potential income they would have earned if a loan was paid off early. It is intended to discourage borrowers from paying off their loan before the agreed-upon term and to ensure that lenders are able to collect the full amount of interest they were expecting.
If a loan has a pre payment penalty attached would it still be viable to retire it?
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.
How soon can a mortgage be refinanced?
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.
Can you refinance an auto loan before a year?
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.
