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