Paying Off Your Mortgage Too Early Could Cost You

Paying Off Your Mortgage Too Early Could Cost You

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Everyone wants to pay off his or her debts. This includes paying off your mortgage early. You have the grand idea that you will own you home in the shorter amount of time and get rid of a huge debt that otherwise will remain for years to come.

Although mortgage prepayment is in your best interest, it is not for the lender.

Lenders generally do not like prepayment of mortgages because they loose money if a loan is repaid early due to the fact the interest is based on a certain length of time. Lenders will often charge a prepayment penalty fee for homeowners who pay their loan early.

This penalty is usually written into your contract and is clearly stated that a penalty fee will be charged as either a percentage of the balance or number of months that remain on the loan. It is important to read the contract carefully and to ask any questions until you fully understand.
Once the contract is signed, it a legally binding.

Mortgage prepayment penalties can be tricky. You can be charged with a prepayment penalty if you sell your home or even refinance. There are two different types of mortgage prepayment penalties. Which are hard or soft. A hard penalty is when you are not allowed to sell or refinance your home without being penalized. A soft mortgage prepayment penalty only occurs when you refinance your loan.

Over the span of the first five years, the prepayment penalty decreases, and after five years, it can be eliminated altogether. It is also important to remember that you can make a payment up to 20% of the loan each year and not receive a penalty.

In some instances, if the homeowner has good credit or high down payments, he or she takes the prepayment penalty to actually lower their monthly payment. It is important to consider this option if it is offered because it will decrease your payment.

Whether it is a hard or soft prepayment penalty, it will remain in effect for the length of your loan. It is recommended that if you are thinking of selling your home, avoid accruing a hard penalty.

If you are the co-borrower, and have less than perfect credit, the lender may require you to have a prepayment penalty. Lenders understand that the your credit will improve over time and more often than not the borrower will refinance to obtain a lower rates. Have a prepayment penalty. Lenders understand that the your credit will improve over time and more often than not the borrower will refinance to obtain a lower rates. Lenders know they will take a loss; therefore they will impose the penalty.

It may not be possible to negotiate a penalty, although it is possible to negotiate some terms. Make sure that the mortgage repayment penalty only applies to the time of the loan and not the sale of the house.

When you are applying for a home loan, it is critical that you know what to expect. Do some research, and make sure that the terms of the loan will benefit you more than the lender.

About the Author:
For more tips about buying and selling real estate, or if you"'re interested in the Las Vegas or Phoenix real estate markets, visit Las Vegas Real Estate Talk! and Phoenix Real Estate Talk!



Article Originally Published On: http://www.articlesnatch.com


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