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Answers - Prepayment Penalties on Your Mortgage - Pros and Cons
“Prepayment penalties” have become one of those phrases that borrowers automatically assume
is negative when dealing with their mortgage lender.
Prepayment penalties are not usually negative. They are simply misunderstood. The clients I speak with on a daily basis nearly all say the same thing, “my friend says I should ask for a mortgage with no prepayment penalty.”
Unless you are looking to flip the property in under 12 months, which a lot of people have done in recent years, you should not be afraid of a prepayment penalty. In fact, they are often a good thing and can reduce your monthly payment substantially.
“What is a Mortgage Prepaymen
Prepayment penalties are not usually negative. They are simply misunderstood. The clients I speak with on a daily basis nearly all say the same thing, “my friend says I should ask for a mortgage with no prepayment penalty.”
Unless you are looking to flip the property in under 12 months, which a lot of people have done in recent years, you should not be afraid of a prepayment penalty. In fact, they are often a good thing and can reduce your monthly payment substantially.
“What is a Mortgage Prepaymen
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
t Penalty?”
A prepayment penalty is a written obligation, in your loan documents, that states that if you pay off the loan entirely, or a major part of it, before a certain period of time you will pay a penalty.
You are usually offered a lower interest rate or lower fees on your mortgage in exchange for accepting this penalty.
The penalties are usually a preset percentage of the outstanding balance of your loan at the time of prepayment or they can be a specified number of months of interest.
Most prepayment penalties I deal with are around six month’s interest.
Let’s say your mortgage payment is $1200/mo. Of this, let’s say that $1000 is in
You are usually offered a lower interest rate or lower fees on your mortgage in exchange for accepting this penalty.
The penalties are usually a preset percentage of the outstanding balance of your loan at the time of prepayment or they can be a specified number of months of interest.
Most prepayment penalties I deal with are around six month’s interest.
Let’s say your mortgage payment is $1200/mo. Of this, let’s say that $1000 is in
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
terest. Now let’s
assume you have a two-year prepayment penalty. This means if you pay off your mortgage, in
full, by selling the home or refinancing the mortgage before two years have gone by you will pay a
prepayment penalty to the bank of six months interest or $6000 as a penalty for early payoff.
Sounds like a lot to pay. But as you will read below it may be of value.
If you have a prepayment penalty, somewhere in the body of your loan documents, you will also find a provision that usually allows you to up to pay up to 20% of the mortgage in any one year without a penalty. If you pay more than this the penalty kicks in.
For example, if
Sounds like a lot to pay. But as you will read below it may be of value.
If you have a prepayment penalty, somewhere in the body of your loan documents, you will also find a provision that usually allows you to up to pay up to 20% of the mortgage in any one year without a penalty. If you pay more than this the penalty kicks in.
For example, if
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
your mortgage is $300,000, you can pay up to $60,000 a year without the penalty taking effect.
There are two different kinds of prepayment penalties.
A “hard” prepayment penalty means that you cannot sell or refinance the home within the prepayment penalty period.
A “soft” prepayment penalty only applies to a refinancing. You can sell it at anytime without penalty. You can’t refinance it without penalty.
"What are the advantages of a prepayment penalty mortgage?" You can usually get a lower interest rate and maybe even reduced fees.
"What are the disadvantages of a prepayment penalty mortgage?" If you pay off your mortgage in full before
There are two different kinds of prepayment penalties.
A “hard” prepayment penalty means that you cannot sell or refinance the home within the prepayment penalty period.
A “soft” prepayment penalty only applies to a refinancing. You can sell it at anytime without penalty. You can’t refinance it without penalty.
"What are the advantages of a prepayment penalty mortgage?" You can usually get a lower interest rate and maybe even reduced fees.
"What are the disadvantages of a prepayment penalty mortgage?" If you pay off your mortgage in full before
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
it is due or if you choose to refinance your loan early, you
may owe a substantial prepayment penalty. Once again, six month's interest is pretty standard.
“Why should I accept a prepayment penalty?” Prime borrowers, with good credit, will usually get a better interest rate if they accept a prepayment penalty and they may even get discounted fees. Failure to accept a prepayment penalty may result in higher rates and fees.
Think about it. You are the bank. Your client has asked you for a $300,000 loan. Your profits come from this client making years of interest payments on the loan. The fewer years your client pays, the less profit to you.
“Why should I accept a prepayment penalty?” Prime borrowers, with good credit, will usually get a better interest rate if they accept a prepayment penalty and they may even get discounted fees. Failure to accept a prepayment penalty may result in higher rates and fees.
Think about it. You are the bank. Your client has asked you for a $300,000 loan. Your profits come from this client making years of interest payments on the loan. The fewer years your client pays, the less profit to you.
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
Thus, investors who buy loans from lenders in the secondary market are willing to accept a lower rate in exchange for a prepayment penalty. They want the security of being able to count on your payments.
The benefit of a prepayment penalty to them is that it discourages you from refinancing if interest rates decline in the future.
If you borrow money from them at 6.000% and the rate drops to 5.000% at a later date but you stop yourself from refinancing due to a prepayment penalty, it means even greater profits for the bank.
However, you may save between .250% and .500% by accepting a prepayment penalty. On a $300,000 loan, this can be be
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
ween $50-100 per month. $600-$1200 yearly. Its not a bad
deal for simply agreeing not to refinance for a while, especially when there is no way to predict
future interest rates.
Even with these great benefits, most prime borrowers avoid prepayment penalties.
They do this because of the negative connotation that it got from someone who they trust or because they were simply never offered the option by their loan “expert.”
As you are aware, many loan officers barely know their loan programs let alone the benefits of a prepayment penalty so they never give the borrower the option. The borrower's friend or neighbor told them not to accept a pr
Even with these great benefits, most prime borrowers avoid prepayment penalties.
They do this because of the negative connotation that it got from someone who they trust or because they were simply never offered the option by their loan “expert.”
As you are aware, many loan officers barely know their loan programs let alone the benefits of a prepayment penalty so they never give the borrower the option. The borrower's friend or neighbor told them not to accept a pr
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
epayment penalty, so they simply don't want it.
This is very costly to your clients. Many more prime borrowers would elect a prepayment penalty option if they understood it. They just never get the chance.
“How long a penalty should I accept?” Choosing a prepayment penalty mortgage is a decision that primarily depends on both your current financial situation and how long you think you'll keep your mortgage before refinancing or making a very large payment against it.
The question you have to ask yourself is just like the question you ask when considering an adjustable rate mortgage. How long will I be in this house?? How long will I have t
This is very costly to your clients. Many more prime borrowers would elect a prepayment penalty option if they understood it. They just never get the chance.
“How long a penalty should I accept?” Choosing a prepayment penalty mortgage is a decision that primarily depends on both your current financial situation and how long you think you'll keep your mortgage before refinancing or making a very large payment against it.
The question you have to ask yourself is just like the question you ask when considering an adjustable rate mortgage. How long will I be in this house?? How long will I have t
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
his loan?
The other thing to consider is how good you believe your interest rate compared to where it will go. You don’t want to be boxed into a prepayment penalty, see rates go way down, and then not be able to react and refinance.
I suggest you check out the rates for your loan with no pp penalty, with a one year pp penalty, and then with a two-year pp penalty. You really don’t want to be penalized for selling your home so try and get the penalty to be a “soft” prepayment penalty.
If you are positive that you will not be selling this house for a while, consider the “hard” penalties as well.
A penalty of six months interest, payable only
The other thing to consider is how good you believe your interest rate compared to where it will go. You don’t want to be boxed into a prepayment penalty, see rates go way down, and then not be able to react and refinance.
I suggest you check out the rates for your loan with no pp penalty, with a one year pp penalty, and then with a two-year pp penalty. You really don’t want to be penalized for selling your home so try and get the penalty to be a “soft” prepayment penalty.
If you are positive that you will not be selling this house for a while, consider the “hard” penalties as well.
A penalty of six months interest, payable only
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
on refinancing within two years, is a very
reasonable price to pay for a .25%-.50% reduction in rate. You can save $1,000's in the short
term and $10,000's over 30 years.
When I purchased my own home, I accepted a hard one-year prepayment penalty. Rates went down and I refinanced it after one year. I accepted another one-year hard prepayment penalty. It pushed my rate further down in both cases.
“Do I have an option on a prepayment penalty if I am a sub-prime borrower?” Lenders generally demand prepayment penalties on sub-prime loans because the risk of refinancing is higher than on prime loans. They do this because sub-prime borrowers are
When I purchased my own home, I accepted a hard one-year prepayment penalty. Rates went down and I refinanced it after one year. I accepted another one-year hard prepayment penalty. It pushed my rate further down in both cases.
“Do I have an option on a prepayment penalty if I am a sub-prime borrower?” Lenders generally demand prepayment penalties on sub-prime loans because the risk of refinancing is higher than on prime loans. They do this because sub-prime borrowers are
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
looking to refinance from the moment they take possession of their new home.
A sub-prime borrower controls his own market. Even if interest rates go up, he can still get his rate down by simply improving his credit. Good credit borrowers will only refinance if rates go down.
Let’s say that Bill is a sub-prime borrower with bad credit. He gets into a 30 year loan for 10.000%. At the same time, Chris, a good credit borrower, gets 6.000% for the same loan. If rates go to 7.000% in the next year, Chris has absolutely no reason to refinance. Let’s say that over this same period, Bill works on his credit and is now no longer considered a sub-pr
A sub-prime borrower controls his own market. Even if interest rates go up, he can still get his rate down by simply improving his credit. Good credit borrowers will only refinance if rates go down.
Let’s say that Bill is a sub-prime borrower with bad credit. He gets into a 30 year loan for 10.000%. At the same time, Chris, a good credit borrower, gets 6.000% for the same loan. If rates go to 7.000% in the next year, Chris has absolutely no reason to refinance. Let’s say that over this same period, Bill works on his credit and is now no longer considered a sub-pr
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
ime
borrower. He should be able to refinance at 7.000% or slightly higher.
The bank took a lot of risk on "bad-credit" Bill when it originally loaned to him and now "better credit" Bill wants out. Because of the high costs and even higher default rates in sub-prime lending, it is not profitable if the good loans leave after only one to two years.
If you are sub-prime, still try and negotiate. Although you will probably have to accept some kind of pp penalty, you will probably be able to negotiate the specifics of the deal. Even if you are able to get it waived for a fee, the cost may not make sense.
Try and make it no longer than two yea
The bank took a lot of risk on "bad-credit" Bill when it originally loaned to him and now "better credit" Bill wants out. Because of the high costs and even higher default rates in sub-prime lending, it is not profitable if the good loans leave after only one to two years.
If you are sub-prime, still try and negotiate. Although you will probably have to accept some kind of pp penalty, you will probably be able to negotiate the specifics of the deal. Even if you are able to get it waived for a fee, the cost may not make sense.
Try and make it no longer than two yea
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
s and see if they will give you a soft instead of a hard pp penalty. Even with bad credit, you are still the customer and the lender still wants to make a sale.
“How do I avoid getting duped?” I cannot tell you how many calls I receive from clients looking to refinance their home who don’t know if they have a prepayment penalty.
Then there are the times when they think they didn’t have one only to have it show up in the payoff statement of the mortgage when we are getting ready to close the refinance.
I have heard many nightmare stories about unethical mortgage companies and their loan officers slipping prepayment penalties into loans witho
“How do I avoid getting duped?” I cannot tell you how many calls I receive from clients looking to refinance their home who don’t know if they have a prepayment penalty.
Then there are the times when they think they didn’t have one only to have it show up in the payoff statement of the mortgage when we are getting ready to close the refinance.
I have heard many nightmare stories about unethical mortgage companies and their loan officers slipping prepayment penalties into loans witho
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
ut the borrower knowing. The borrower does not
carefully review what they are signing, they had no discussion about it prior, and they end up with
a horrible, non-beneficial prepayment penalty.
Prepayment penalties can go as high as five years. If you are not paying attention, you could be stuck in your loan, with no way out except a massive penalty, for a very long time.
You should discuss prepayment penalties with your loan officer at the very first meeting. If you are OK with one, use it to your advantage to negotiate a better rate.
Read your loan docs carefully at signing to make sure they are exactly as agreed BEFORE you sign them.
As
Prepayment penalties can go as high as five years. If you are not paying attention, you could be stuck in your loan, with no way out except a massive penalty, for a very long time.
You should discuss prepayment penalties with your loan officer at the very first meeting. If you are OK with one, use it to your advantage to negotiate a better rate.
Read your loan docs carefully at signing to make sure they are exactly as agreed BEFORE you sign them.
As
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
k the escrow officer at your signing or your loan officer to go over the prepayment penalty
documents with you in detail. They are usually clearly marked at the top like "PREPAYMENT PENALTY RIDER."
Don’t accept any verbal promises. If it’s not in writing it does not exist.
Don’t sign any addendums after you have signed your original loan docs without carefully reviewing them. Once again, unethical lenders may try and get you to sign a prepayment penalty addendum AFTER the fact.
Lenders sometimes make mistakes. We may ask you to sign note corrections and other forms after it seemed like the transaction was complete. You even sign an error
Don’t accept any verbal promises. If it’s not in writing it does not exist.
Don’t sign any addendums after you have signed your original loan docs without carefully reviewing them. Once again, unethical lenders may try and get you to sign a prepayment penalty addendum AFTER the fact.
Lenders sometimes make mistakes. We may ask you to sign note corrections and other forms after it seemed like the transaction was complete. You even sign an error
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
and omissions
statement at closing that protects us when this happens. However, all corrections should be
related to the deal as you accepted it in your discussions with your lender.
If the lender made a mistake about a prepayment penalty that you knew about and had agreed to you should sign this addendum. If you are presented an addendum for a prepayment penalty with terms that you did not previously agree to, tell them to forget it.
“I was duped or I didn’t know what I was getting into. How do I get out of it now?” The prepayment penalty is a contractual obligation no different than the rest of your loan docs. The only way out of it is
If the lender made a mistake about a prepayment penalty that you knew about and had agreed to you should sign this addendum. If you are presented an addendum for a prepayment penalty with terms that you did not previously agree to, tell them to forget it.
“I was duped or I didn’t know what I was getting into. How do I get out of it now?” The prepayment penalty is a contractual obligation no different than the rest of your loan docs. The only way out of it is
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
to get the other party to the contract to let you out. This is not very likely.
Lenders have no reason to waive a prepayment penalty. You are asking them for permission to
end your business relationship with them.
In addition, borrowers call banks everyday trying to get out of prepayment penalties that they knowingly agreed to, especially when interest rates fall or they get an unexpected offer on their house that they can't refuse. They make up every excuse they can think of to get rid of it.
When you call to complain or say you were duped, you will certainly not be the first caller that day crying the same thing.
One of my reps at one of th
In addition, borrowers call banks everyday trying to get out of prepayment penalties that they knowingly agreed to, especially when interest rates fall or they get an unexpected offer on their house that they can't refuse. They make up every excuse they can think of to get rid of it.
When you call to complain or say you were duped, you will certainly not be the first caller that day crying the same thing.
One of my reps at one of th
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
e largest secondary banks in the country once told me that there was no legitimate excuse he could think of to warrant letting someone out of the penalty. Not even death.
You may have a better chance with a lawyer or the company that originated your loan.
If you can convince the originating bank that you were “taken” by one of their loan officers and that the terms are far too strict, they may be able to rewrite your prepayment penalty note and take the financial hit from the secondary bank themselves.
Don’t count on this. There is simply no excuse for not having read your loan documents when you signed them. Rule #1 in all contracts, "read
You may have a better chance with a lawyer or the company that originated your loan.
If you can convince the originating bank that you were “taken” by one of their loan officers and that the terms are far too strict, they may be able to rewrite your prepayment penalty note and take the financial hit from the secondary bank themselves.
Don’t count on this. There is simply no excuse for not having read your loan documents when you signed them. Rule #1 in all contracts, "read
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
before you sign."
"What should I ask my lender about the prepayment penalty?"
• Ask to see the document containing the prepayment penalty. Read it carefully.
• Ask how much the penalty is that you'll be required to pay if you are penalized.
• You want to know all of the ways that the prepayment penalty will be triggered.
• Ask exactly how much you'll save on your closing costs or fees if you take a prepayment penalty.
• How about the rate? How much lower will it be?
• Does the prepayment penalty apply when I sell too? Or just when I refi?
• How is the penalty going to be calculated?
• When can you start
"What should I ask my lender about the prepayment penalty?"
• Ask to see the document containing the prepayment penalty. Read it carefully.
• Ask how much the penalty is that you'll be required to pay if you are penalized.
• You want to know all of the ways that the prepayment penalty will be triggered.
• Ask exactly how much you'll save on your closing costs or fees if you take a prepayment penalty.
• How about the rate? How much lower will it be?
• Does the prepayment penalty apply when I sell too? Or just when I refi?
• How is the penalty going to be calculated?
• When can you start
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
prepaying and not suffer the penalty?
The bottom line is this…if you have good credit, you will usually not be required to have a prepayment penalty. However, having one may lower your rate pretty substantially.
It's important you know how much this option is saving you so that you can make the best decsion on your loan.
If you have bad credit, you may be required to have a prepayment penalty to allow the lender to benefit from some of the risk he is taking by loaning you money. Asking that it be waived may be cost-prohibitive.
Either way, it is important for you to openly discuss this with your lender from the very first meeting
The bottom line is this…if you have good credit, you will usually not be required to have a prepayment penalty. However, having one may lower your rate pretty substantially.
It's important you know how much this option is saving you so that you can make the best decsion on your loan.
If you have bad credit, you may be required to have a prepayment penalty to allow the lender to benefit from some of the risk he is taking by loaning you money. Asking that it be waived may be cost-prohibitive.
Either way, it is important for you to openly discuss this with your lender from the very first meeting
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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