Is there any kind of penalty from the home loaner if you pay off too much of principle at once?

Question

If in a year you pay more principle than its actually amortized then is there a penalty from the loaner?

Answer 1

I think your question has to do with you paying more on the principal over a period of time. Yes there is a sort of penalty. The lender normally set this at 20%. You are not allowed to exceed 20% per year.

The best way to pay off a mortgage early that has been accepted by most mortgage lenders is the bi-weekly program.

Now don't go out and pay someone to set this program up for you. This can be done by your mortgage lender. Simply call your lender and ask about setting yourself up for the bi-weekly program.

You can set the program up through your bank or you can simply start doing it yourself by sending your mortgage lender a check every two weeks with the monthly payment divided equally.

Now the other that the others are speaking of is a pre-payment imposed so the investor can earn interest on his investment in the event you decide to pay your loan off early.

Normally the prepay is 2 years or 3 years, however you may buy the prepay down or in some instances you may buy it completely out.


I hope this has been of some use to you, good luck.

"FIGHT ON"

Answer 2

Basically all are right..typically a pre-pay penalty is executed when a single or multiple payments is a period exceed 20%. The pre-pay penalty can be based on 80% of the remaining principle balance times your note rate divided by 6 or what some call a competitor PP scenario which is simply 6 months worth interest. Some lenders also offer declining PP something like 5/3/1 or 5 months interest 1st yr. 3 mo. interest 2nd yr and 1 mo interest 3rd yr. As stated earlier if you have a PP, you'll have a rider as well. if you can't find your documents, ask your lender for a pay-off statement if free. It will show you the total including PP if any.

Before I go, I must address the poster that suggested PP are for 0 down loans or where the lender has charged lower fees. This information is WRONG! I don't want to bore you all with secondary performance, WAC and other terminologies so I'll keep it simple. lender sell loans on the secondary market to investors in exchange for?? money and in return a lender quarantees a few things to the investor, performance, profit, and security. Performance= timely deliverance of the loan documents and all conditions met, plus timely payments from the borrower..usually 6-12 months, Profit= we make loan at this, sell at this and if loan performs you'll make this. Security= a combination of the latter 2. We gurantee the performance or we'll buy it back, we gurantee the payments for a certain time period or the borrower will have a pre-pay penalty, in which case you still get something, and we believe that this loan will earn a profit. The same theory holds true for portfolio lenders. PP are to protect the investors against expected but un-realized payments due to early pay-offs. Additionally, there are those that believe PP are actually a deterent to equity stripping refis. but under no circumstance is a PP for 0 down or low cost loans only

Answer 3

Generally there is no penalty for paying more than the minimum payments in a year, like if you send in extra payments towards the principal.

However, some loans have a pre-payment penalty which means if you pay the loan off in its entirety or below a certain amount of principal before a certain time frame, there is a penalty. Typically these pre-payment penalties are on loans that came with 0 costs to open or where the lender covered a lot of the closing costs. The lenders do this because they want to ensure that they receive a minimum amount of interest from you to cover their other costs.

You should read your loan documents carefully to determine if you have a loan with a pre-payment penalty or not.

Answer 4

Only if you signed a Pre-Payment Penalty disclosure or Rider at the time of your closing. If you did, you can be charged a percentage of the loan amount for paying off the loan (or a large percentage at once...usually 20%) before a set amount of time.

Check you old loan documents, or call your lender and ask.

Answer 5

Only if such is specified in your loan contract and permitted by the laws of your state.

No penalty in the contract - no penalty for pre-pay

No penalty allowed in your state (somebody told me North Carolina really is stupid enough to outlaw them completely) - no penalty

Penalty in contract and allowed by law: penalty. They divide into hard and soft (soft is not charged if you actually sell the property) and first dollar or 20% (if it is triggered by the first extra dollar, or by paying more than 20% of the principle in a year)

(And yes, disallowing them is stupid, but that's a topic for a whole essay, such as this one http://www.danmelson.com/posts/1147930537.shtml)

Answer 6

That depends on the state, and local laws where you are.

Answer 7

only if u have a pre payment penalty.....