Beware the Pitfalls of Pre-Payment Penalties

Millions of homeowners that have balances on their home mortgages can quote you their interest rate, terms, and in some cases – their outstanding loan balances.  However, when asked if they know how much – or if – they have a pre-payment penalty on their existing mortgage loans; consumers tend to lose their confidence. 

The reason is simple.  Most people don’t have a clue, which is unfortunate, because if refinancing is on your to-do list, this lack of knowledge can cost you thousands of dollars.  Before you refinance you need to find out:

First of all, in case you’re blissfully unaware of what a pre-payment penalty is, it’s a fee charged by your lender when you exercise your right to pay your loan off early.  It’s no secret that we’re all working towards the day we can leap into the air and celebrate the fact that our mortgage loan has a zero balance, but very few of us know that if savvy investing or an unexpected surge in income tempts you to pay your mortgage off before it’s due, you could be on the hook for 3%-4% of your original loan balance.

You can quickly find out if this is the case for you by pulling out you mortgage contract and reading the legalize in the document.  Most mortgages will list this item in bold letters under a heading marked “pre-payment penalties”.  It is possible, however, that you’ll have to dig a little deeper to find it.

Regardless of whether or not your existing loan documents list a pre-payment penalty, some lenders will try to include a penalty on a new refinance loan.  If your lender tries to include one, however, and you think there’s a chance you might want to refinance before your loan matures, definitely speak up.  You don’t want to exercise your right to remain silent at this point or you could be committing yourself to a loan term you probably don’t want.

There’s no way of knowing beyond a shadow a doubt that your lender will waive the early payment penalty, but one thing is certain:  If you don’t speak up there’s a strong possibility that your next loan could have an early payment penalty.  Speak up and save yourself several thousand dollars.

How successful have you been ingetting your mortgage lender to concede this point? 

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