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A prepayment penalty discourages borrowers from paying more or paying off the loan.
A prepayment penalty is a fee that some lenders charge when you pay off your mortgage early. Typically, the prepayment penalty only applies to paying off your mortgage in full or making a ...
So, if your outstanding loan balance in year two is $295,000 and you pay your mortgage off, the lender could charge a prepayment penalty of up to $5,900. How do you prepay your mortgage?
As another way to compensate for prepayment risk (which is a reinvestment risk), a prepayment penalty clause is often included in the loan contract. [2] "Soft" prepayment terms can allow prepayment without penalty if the home is sold. "Hard" prepayment terms do not allow any exceptions without penalty.
In most cases, paying off debts early is a smart financial idea, as you'll save money on interest owed. But when it comes to a mortgage, this isn't always the case -- in some cases, you may be...
Refinancing can help you pay off your mortgage more quickly if you shorten the loan term — if your new mortgage is 15 years, instead of 30 years like the original one, say.
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These penalties used to be called a redemption penalty or tie-in; however, since the onset of Financial Services Authority regulation they are referred to as an early repayment charge. Valuation fee, which pays for a chartered surveyor to visit the property and ensure it is worth enough to cover the mortgage amount.