Help! How do I refinance an adj. rate mortg. with a pre-payment penalty?

Question

I have a payment option mortgage that allows 4 different payments to the account. My mortgage officer never explained this option and I was told my monthly payment would be $422, the lowest of the four. In reality, if I make that payment, it doesn't cover any principle and only some interest, the rest of the interest defers and adds to the balance. The 1st payment, covering interest and priciple is 3x this amount. When I realized this and wanted to refinance, I found out I had a pre-payment penalty. Even if I refinance to a fixed rate with the same bank, they will only waive part of the penalty. How do I deal with this?

Answer 1

Make your payment to cover all of the interest. At least that option. Then as soon as the prepay expires refi with a different lender. As long as you pay the full interest payment you should be ok.

did your realtor recommend this loan rep? If so complain to the realtor about what is going on so that they don't keep sending clients to them.

Answer 2

Unfortunately, you have no choice or recourse in this matter. An attorney will not help because you DID sign off on all the loan papers to close this deal. Those types of loans have a LOT of disclosures and warnings that you need to sign before they close.

Everyone sees the super low payment and "black-out" all the warning signs.

These loans can be good for some people, you just have to use your money wisely. Instead of refinancing and paying the penalty, try this out: continue to pay the minimum payment to the mortgage company each month until the penalty period is up. Take the difference of that min. payment and the new higher payment (if you would have refinanced) and put that money is a savings account or money market account each month.

At the end of your pre-payment period you will have enough to cover the additional principle balance that accumulated and maybe even some additional if you invested wisely. This side fund is also a good emergency fund that you always have access to. If you pay extra to your mortgage, you can't take the money back put easily.

Good luck,

Greg S.

Answer 3

At the closing, did the closer with the title company show you what your payment was to be? One thing you can do, and I would suggest you doing it, is get hold of your state - go online and do a search for the web address & phone number and report the Loan Officer &/or Broker. I am a Mortgage Broker, and I always tell my clients everything upfront (how else can I live with myself and my 2 sons), I have even cut fees and have done a free bee recently just for my client to get into their home before Christmas. There are honest Mortgage Professionals out here, and we are not all looking at the money.

Now that I said that, please do report this person.

I would suggest staying until the pre-payent (pp) is over with. Is this a 2 yr or 3 yr prepayment? Look at your paperwork you got at the closing table and check it over (ok). If you absolutely want to get away from this company, that that is your right - you can go to any web site on here, and use their mortgage calculator. Just figure up what you owe + the pp, and more closing costs. Put in a rate of 6 percent if your credit is good. See what your payment would be. Are you escrowing your taxes and insurance now? If you use the same title company you can get a a credit or a lower title insurance thru them.

Answer 4

Well the sad part is there isnt really anything you can do to get out of the loan without paying the prepayment penalties unless you wait until the time period is up. It is unfortunate that you can't trust some mortgage officers. I work in a bank myself and I have come across things like this with people bringing similar questions to me. Yes you can explain to them it was never told to you but then they can say you signed the papers and that you agreed to all terms and conditions. This is why its soooo important to as they say "read the fine print". One thing I dont recommend is threaten with an attorney. Number one they hear that all the time and it will make them less likely and willing to help you. Do you really want the hassles of an attorney anyways? I would just cut your losses and go to someone you can trust to do your mortgage refinance because in the end you will end up paying more with the adjustable rate anyways.

Answer 5

1) Get educated on mortgages. Usually, credit unions offer free resources and seminars.
2) You should accuse your current lender of predatory lending practices. What they did to you was pure evil and dishonest banking. They "got" you now and want you refinance again? Evil! They are going to then collect massive closing costs and continue to rob you blind.
3) Get a new lender immediately! Hopefully, your credit score and equity will allow you to refi your mortgage with cash back to cover the prepayment penalties and that way you don't need to cough up cash.

If you absolutely can't get another loan, pay extra towards the interest to met their obligations and the very second that your pre-pay waiver expires, GET OUT of your current lender immediately.

This is a very hard and tragic situation. In the future make sure to read everything carefully and if you are unsure, hire a lawyer for $200 to review your contract. I am hoping all the best for you. Good luck and I will pray for you.

Answer 6

You signed the Truth-In-Lending statement which clearly stated there is a prepayment penalty. It will be impossible for you to claim you didn't know about it when you signed a document stating you did know about it.

I know it is an expensive lesson, but nobody forced you into this loan product. You were given not only the TIL, but the Consumer Handbook on ARMs and and ARM Disclosure. You had to be. It's a legal requirement. But you didn't read any of the paperwork and just assumed it was complicated. Now you know to research thoroughly before you purchase the loan. All you can do is live and learn. You cannot undo the past.

But do call them and threaten to have your attorney get in touch with them. Your lender deserves a good laugh!

Sorry to be harsh, but people need to take personal responsibility for their actions.

Answer 7

Tell the company that put you in this program that you expect them to pay this prepay penalty and refinance your loan for free unless they want to hear from your attorney.