Everyone wants to pay off his or her debts. This includes
paying off your mortgage early. You have the grand idea that
you will own you home in the shorter amount of time and get rid
of a huge debt that otherwise will remain for years to come.
Although mortgage prepayment is in your best interest, it is
not for the lender.
Lenders generally do not like prepayment of mortgages because
they loose money if a loan is repaid early due to the fact the
interest is based on a certain length of time. Lenders will
often charge a prepayment penalty fee for homeowners who pay
their loan early.
This penalty is usually written into your contract and is
clearly stated that a penalty fee will be charged as either a
percentage of the balance or number of months that remain on
the loan. It is important to read the contract carefully and to
ask any questions until you fully understand.
Once the contract is signed, it a legally binding.
Mortgage prepayment penalties can be tricky. You can be charged
with a prepayment penalty if you sell your home or even
refinance. There are two different types of mortgage prepayment
penalties. Which are hard or soft. A hard penalty is when you
are not allowed to sell or refinance your home without being
penalized. A soft mortgage prepayment penalty only occurs when
you refinance your loan.
Over the span of the first five years, the prepayment penalty
decreases, and after five years, it can be eliminated
altogether. It is also important to remember that you can make
a payment up to 20% of the loan each year and not receive a
penalty.
In some instances, if the homeowner has good credit or high
down payments, he or she takes the prepayment penalty to
actually lower their monthly payment. It is important to
consider this option if it is offered because it will decrease
your payment.
Whether it is a hard or soft prepayment penalty, it will remain
in effect for the length of your loan. It is recommended that if
you are thinking of selling your home, avoid accruing a hard
penalty.
If you are the co-borrower, and have less than perfect credit,
the lender may require you to have a prepayment penalty.
Lenders understand that the your credit will improve over time
and more often than not the borrower will refinance to obtain a
lower rates. Have a prepayment penalty. Lenders understand that
the your credit will improve over time and more often than not
the borrower will refinance to obtain a lower rates. Lenders
know they will take a loss; therefore they will impose the
penalty.
It may not be possible to negotiate a penalty, although it is
possible to negotiate some terms. Make sure that the mortgage
repayment penalty only applies to the time of the loan and not
the sale of the house.
When you are applying for a home loan, it is critical that you
know what to expect. Do some research, and make sure that the
terms of the loan will benefit you more than the lender.
About The Author: For more insider tips about buying, selling,
and investing in real estate, or if you%rsquo;re interested in the
Las Vegas or Phoenix real estate markets, visit
http://www.lasvegasrealestatetalk.com and
http://www.phoenixrealestatetalk.com.
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