Pre-Payment Penalties
Some mortgages come with a provision that penalizes you for
paying off the loan balance faster. Such penalties can amount to as much as several
percentage points of the amount of the mortgage balance that is paid off early.
Some lenders won't enforce their loan's prepayment penalties when
you pay off a mortgage early because you sold the property or because you want to
refinance the loan to take advantage of lower interest rates as long as they get to make
the new mortgage. Even so, your hands are tied financially unless you go through the same
lender.
Many states place limits on the duration and amount of prepayment
penalty lenders may charge for mortgages made on owner-occupied residential property. The
only way to know whether a loan has a prepayment penalty is to ask and to carefully review
the federal truth-in-lending disclosure and the promissory note the mortgage lender
provides you with. We think that you should avoid such loans. (Many so-called no points
loans have prepayment penalties.)
(NOTE: No pre-payment penalties are allowed by law in
South Carolina)
This Homebuyers Tip was excerpted from
Home Buying For Dummies, by Eric Tyson, Ray Brown. © 1997 by
Eric Tyson, Ray Brown, used by permission of IDG Books. ISBN#:
1568843852
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