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Avoid Mortgage Prepayment Penalty  

 

A prepayment penalty is a penalty you have to pay if you decide to pay off your home mortgage early. Many loans don't have the penalty anymore, but it is better to be safe than sorry. The last thing you want when you are excited about making a huge payment and finishing your home loan, is to have to pay more. Basically what you are doing when you get a mortgage is getting into a contract that says you will pay a certain amount for a certain term. Just like a cell phone contract, if you want out early, you will pay through the nose.   

 

Make a point of asking if the loan recommended to you has a prepayment penalty. If it does, ask if you can buy out of it at the beginning of the loan process. This is done by adding one or two points to the mortgage. A point represents 1% of the loan. If all else fails, find another loan. Unless you are certain that you will not want to pay off your loan early, don't get into a loan with prepayment penalty.  Refinancing counts as paying off your loan early, as does selling your house. 

 

If you are already in a loan with a prepayment penalty, there is a glimmer of hope that you can get out of it. Did you have to move due to transfer, do you want to get a lower interest rate? If you have good reasons, your lender may be willing to listen to you. Maybe you can talk your way out it. Sound confident and remember that you are in the position of power, it is your money after all and they want it. If all else fails and you have to move due to transfer, see if your employer covers this penalty in the moving costs. 

 

Don't be sweet talked into allowing a prepayment penalty in exchange for a lower interest rate. You have no way of knowing what the future will bring. What you want now will not be worth it later. If you have bad credit, you may be required to accept the penalty. But use your negotiation abilities here too. If you make all your payments on time for a few years, perhaps you can use that as ammunition when you try to refinance. Or get somebody on your side to help you convince the home mortgage lender. There are community programs and such that may help you out. 

 

Prepayment penalties can be a thorn in your side. Something to keep you awake at night. Bankers want to make penalties seem like a matter of course, but it is important to do your research and not to be afraid to speak out and be sure of what you are getting into. If you have already fallen for the penalty trick, don't worry too much. Have confidence in your abilities to get what you want, find a way to make it happen. Don't let yourself think that a better interest rate or other promotions are more important than some penalty in the future. Buying a home is a big step, look into the future to make sure you are making good decisions.