How do I get out of a prepayment penalty on my mortgage?

Question

I have a mortgage with Countrywide and it has a 3 year prepayment penalty. I am in year 2 now and is there any way to get out of it?

Answer 1

Depends.

What is the penalty, a "percentage" of the balance? A flat fee? If a percentage, you can refi the note and pay off all but say $100.00. Then the penalty is nominal based upon the balance owed.

When you've paid in full the subject loan the second loan then becomes primary. If a flat fee prepay penalty is assessed, you have to weigh the cost to prepay against the advantage of a refi assuming refinancing is your intent. If you are selling you have no alternative than to pay the note in full as you must convey a clear title to the new owner, and that means no liens.

You can also threaten to never do business with them again if they enforce the penalty, there are plenty of other good lenders out there who will not impose a pre-pay penalty. However that usually carries little weight.

Conversely, you did agree to pay it...

Good luck!

Answer 2

There are four possible ways to get out of a prepayment penalty:

1) Don't accept it in the first place

2) Wait until it expires

3) Some lenders will roll it over to a new loan if you refinance with them. Some brokers know how to be more persuasive on this point.

4) Win a court case against the lender. I've worked with folks that had won a waiver of a prepayment penalty as part of a settlement with their previous lender. Unfortunately, this is usually a cure that's worse than the disease, even if you win.

Answer 3

Unfortunately Countrywide will not waive the prepayment penalty at all. I have had clients that were willing to refinance with Countrywide and accept a new prepayment penalty and Countrywide was unwilling to waive it and we do alot of business with them. You either need to wait till year 3 or pay the prepayment penalty if you sell or refinance. If you have any other questions or need any help email me [e-mail].

Answer 4

Paying the loan down to $100 doesn't help unless it is a HELOC type of loan. A normal loan with a Pre-payment Penalty (PPP) will penalize you anytime you pay more than 20% of the balance.

There are 2 types of PPP's. Soft and Hard. Check to see which type yours is. If it is a soft penalty you can sell the house an suffer no penalty. If it is hard, you will pay the penalty if you sell or refinance.

If you refinance with the same company, they will not waive the penalty. Some lenders did this in the past, but no longer do. Their reasoning is why give you a better rate when they have you locked at the current higher rate.

If you do end up paying the PPP, check with your Tax Advisor as this could be a "write-off" for you.

Answer 5

No not without paying the penalty. I am also wil Countrywide and asked the same question.

Countrywide will not waive the prepayment penalty at anytime.

On my 3 year ARM, the prepayment penalty is 6 months of interest. If I pay more than 20% of my loan I will also have the same penalty.

If you do not have your loan documents handy you can find them online at customers.countrywide.com
find your home loan and go to account information then loan documents.

Answer 6

Unfortunately, once you sign the closing docs you're stuck with the prepay. Many times the prepay penalty goes down with each year, so the penalty in year 2 won't be as bad as in year 1. Either you can wait to refinance or pay the penalty.

What I would do, is wait until the month before your penalty expires and start looking for a refinance. Then, you can close the day after the penalty expires.

Oh, and Countrywide will send you lots of papers and fliers asking you to refinance with them directly when they get a payoff demand for your loan. They're notorious for it.

Answer 7

"Dan" and "Vegasb2k" are probably the best answers to your question given the information your provided. The chances of you being able to get out of a Countrywide pre-payment penalty are extremely slim. I'm guessing you have a Payment Option ARM mortgage ... if this is the case, I tell my clients never to take more than a 1 year pre-payment penalty (PPP) on this product. Most Loan Officers push a 3 year PPP on clients because they receive more compensation for doing so ... but rarely is this in the client's best interest.

Answer 8

See if Countrywide will refinance the loan. They may waive the penalty and let you keep your 2 years (only have 28 to go).

Answer 9

If you just fell into a bid wad of cash, share some with me... just joking...

if you just fell into a big wad of cash, read the fine print and see if you can pay larger than the monthly amount with no penalty.. If so, pay off a large chunk and leave enough to pay it off after the time delay.

If you are wanting a refi, you are for all practical purposes SOL unless you can find some legal reason to get invalidated by a judge, such as a failure to disclose it to you.

You might get countrywide to waive it if you refi it with them.

Answer 10

Ask them if they will waive it. If not, then there's no way out of it aside from waiting until the mortgage is 3 years old before paying it off. You agreed to it, now you have to live with it.