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To discourage the borrower to payback a loan to quickly
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∙ 11y ago
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.
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In the state of Pennsylvania is a prepayment penalty legal?
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.
What is purpose of a prepayment penalty in a loan agreement?
To discourage borrowers from paying their loans back too soon
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.
When refinancing should there be a document stating that a prepayment penalty will be charged and how much it will be?
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."
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.
Does new york have a prepayment penalty on auto loans?
no
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)
If a loan has a prepayment penalty should you still pay it off?
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.
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.
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.
Are residential mortgage pre-payment penalties tax deductible?
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)
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.
