| Prepayment penalty loans are on the rise, which | | | | be waived by lenders? |
| means mostly everyone who is buying or refinancing | | | | This gets pretty tricky--and it's actually something I |
| their loan with high loan to value or a maximum 100% | | | | have not done too much--but I always suggest it, |
| financing will be required to take a prepayment penalty. | | | | because the reward could be very much worth the |
| Conventional lenders usually don't require borrowers to | | | | effort. Recently, we have been asking lenders to |
| have a penalty. Mostly, these loans are investor loans, | | | | forgive the prepayment penalty portion of the loan if |
| direct lender loans, and portfolio lenders that either | | | | we were refinancing our clients' loans. We have only |
| offer low adjustable rates or qualifies borrowers with | | | | been successful twice and it's much less effort for us |
| minimal documentation. 100% (no money down) loans | | | | and the escrow company. I believe it's pure luck |
| are usually attached with a prepayment penalty. | | | | because the lender actually can show you proof that |
| How to avoid mortgage prepayment penalties: always | | | | you agreed to a penalty if you were to payoff the |
| remember to ask for an option not to have it. The | | | | loan prior to its due date. But I would like to share |
| lender will then buy down the prepayment option by | | | | something with you that might be very helpful to some |
| increasing your rates or your fees. Some lenders offer | | | | readers. |
| no prepay penalties for 100% financing if your credit | | | | If you are in a situation where you have to refinance |
| meets their minimum required scores and if you can | | | | or sell your house prior to the penalty term due to |
| provide income documentation to fully qualify for your | | | | hardship, some lenders will require you to prove that |
| loans. No income, stated income, or no ratio loans | | | | you are actually in that state and cant continue further |
| typically will have a prepayment penalty. | | | | to pay your loan. Hardship comes in many forms: you |
| It is very important for you to take this seriously. The | | | | have too much debt and can't make the payments |
| penalty will play a huge factor when you want to sell | | | | due to your current income status, property values |
| or refinance your loan. When the market is going up in | | | | have not gone up as much as you have thought they |
| value and prices are rising to the tune of 20-30% per | | | | would and you have to payoff the loan, or maybe you |
| annum. Nobody thinks anything about these penalties, | | | | have lost your job or gone on a disability status where |
| its invisible as far as some people are concern. But | | | | you income has decreased. The lender will evaluate |
| keep in mind that the prepayment penalty will cut into | | | | your whole situation and look into your complete |
| your future net proceeds when you sell your house. It | | | | financials and decide whether you qualify for the |
| will decrease the amount you can take out on a | | | | prepayment penalty to be waived. |
| refinancing loan in good or bad times and the most | | | | If you are to sell your property it works a little |
| important factor is if the property value starts to see | | | | differently. They will ask for listing agreements and |
| earth you might not be able to do both, especially if | | | | they want to see some comps to justify why you are |
| you had bought your property this year and it has not | | | | selling your house for a certain amount. You could also |
| appreciated as much. Mostly, all the analyst agree on | | | | list things that needed to be repaired to the house, or |
| one thing: all these aggressive loans that carry an | | | | other defects if there are any. A full disclosure of all |
| interest only payment or an option loan (negative | | | | costs of the sale will be required to show the lender |
| amortization) payment normally carries a prepayment | | | | that the net proceeds will come to a negative with the |
| penalty. That might be the most valid reason why | | | | prepayment penalty in there, therefore you need to |
| properties will go into foreclosures and default. | | | | request for the penalty to be removed. |
| Lenders are starting to have more stringent guidelines | | | | Remember, we are all enjoying a borrowed equity, |
| for loans that have a negative amortization feature. | | | | due to prices of homes sky-rocketing. But there are |
| This means the principal balance on your loan will | | | | signs of a slowdown. You should know that nothing will |
| actually go higher each month if you choose the option | | | | ever only go one way--it's always a two way street. |
| that requires the minimum payment. | | | | As for the real estate market, it's always a cycle and |
| How can you request for the prepayment penalty to | | | | it's just a matter of when the next cycle will come. |