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Would it still be viable to retire a loan if there a pre-payment penalty?
Wiki User
∙ 18y ago
The decision to pay off a loan which has a pre-payment penalty can be tricky to decipher. The biggest questions to be answered is how you preceive the value of your money over time. Look at it from this view point. First, calculate the value of payoff then add the pre-pay penalty to determine how much it would cost you to pay if off (PO$ - pay off) today. Now look at how much you would pay if you payed off the loan per the agreement by multiplying your payments times the number of payments left to pay (FT$ - full term). If the PO$ is more than FT$ then you obviously want to just pay it out. If not, Subtract the PO$ from the FT$ which will give you the amount of savings (AS$). Now the question is, can you make more money from investing the PO$ with the descreasing amount as loan payments are made such that your profit from investments are greater than the amount of savings (AS$). The value of Money over Time is the deciding factor which is based on can you make more by investing the loan pay off amount than you will save in interest payments over the life of your loan. Remember that there is always risks in investing and if something happens to your investment plan you could lose the money you have to pay your loan off today. Therefore, make sure the amount you can make is substancially more than the amount it will cost to simply pay the loan off as the contract allows. Hope this helps!
Wiki User
∙ 18y ago
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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.
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.
If a loan has a prepayment penalty attatched to it would it still be viable to retire it?
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.
If a loan has a prepayment penalty attached to it would it still be viable to retire?
If the pre-payment charge is considerably less than would be the amount of interest that would be paid through the duration of the loan, then it could be beneficial financially, but might also have a minor and temporary affect on the borrower's credit score.
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.
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)
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 to it would it still be viable to retire it?
No...and they make sure of that. Prepayments are there to make sure the Lender gets every penny they would have received if you stayed in the contract. Which means interest. If you pay out the loan you will pay interest and principle. Payments to your principle balance is equity.
How soon can you refinance a home loan?
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
How soon after you purchase your home can you take out an equity loan?
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.
Is life without parole a viable alternative?
Life without parole can be considered a viable alternative to the death penalty in cases where the goal is to ensure public safety and provide a severe punishment for serious crimes. It eliminates the risk of executing an innocent person while still holding individuals accountable for their actions. However, concerns remain about the cost and the potential lack of opportunities for rehabilitation and reintegration into society.
Is Texas for or against the death penalty?
For. If most of the citizens in Texas did not want the death penalty, there would be no death penalty.
