Mortgage Loan Prepayment Penalty
As another way to compensate for prepayment risk (which is a reinvestment risk), a prepayment penalty clause is often included in the loan contract. "Soft" prepayment terms can allow prepayment without penalty if the home is sold. "Hard" prepayment terms do not allow any exceptions without penalty. Bond issuers can mitigate some prepayment risk by issuing what are called "super sinker" bonds.
As thousands of home sellers and borrowers refinancing mortgages have recently discovered, neatly tucked away in the fine print of their loan is a "prepayment penalty" clause. It allows the mortgage.
What Is a Mortgage Prepayment Penalty? A prepayment penalty is a provision of your contract with the lender that states that in the event you pay off the loan entirely, you will pay a penalty. Penalties are usually expressed as a percent of the outstanding balance at time of prepayment, or a specified number of months of interest.
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. preclude a borrower from refinancing their loans for two years or more. Investors who buy mortgages, however, love prepayment penalties. Why? Because they are usually assured of collecting more.
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According to a recent study, most people with poor credit histories who can only qualify for a higher rate "subprime" mortgage are also liable for a "prepayment penalty," especially if they pay off.
A prepayment penalty is a fee a lender charges if you pay off some or all of your business loan early before the term of your loan is over. The penalty fee is typically a percentage of your total loan amount. As with any loan, it’s important to find out all the details upfront before you sign on the dotted line.
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Prepayment penalties are a part of many mortgage contracts that make it expensive to refinance into a new home loan. If your mortgage contract includes a prepayment penalty, you may have to pay your original lender thousands in additional fees as part of any future refinance.
By listing a prepayment penalty on the loan, your lender can either try to discourage you from paying off the loan early (resulting in full interest payments) or make up for "lost" interest by charging you the fee.