Beating Early Repayment Penalty
if anyone could advise, that would be a tremendous help. i have a friend with a 215K mortgage note and an early repayment loan penalty of 6% ( of loan balance). this is killing his plans to sell the house. does anyone know of a way to get around this? he lives in michigan (by detroit) and his home is 1 yr old, so by the calculation, he could end up needing to repay 13K if he sells now.
hopefully he didn't just do a bad note.
any insight would be appreciated.
I guess you'll need more specifics on what exactly the penalty is and how it applies. Does this mean at the end of the note, or if they pay ahead of time at any time.
Example of how I get around mine...
Here's what I was thinking. Lets say I have a loan out for 146,000 on my house (and I do) and there is a 1% prepayment penalty on the amount due for the first 3 years of the loan. The way I can get around MY penalty is to pay it down to $100 due. Then wait for the next payment to be due. After this, I'll gladly pay the 1% prepayment penalty on the amount due. For me, that's $1. 1% of 100.
[addsig]
Have your friend check his contract or call the lender and find out if prepays apply if he sells his home. Some lenders only impose prepay if you refinance to payoff early, not when you sell. Some impose prepay either way, refi or sell, so have him check. If it is the latter, has to pay even if sells, he has couple of options.
1. L/O prop and have option to excercise when prepay is over
2. Raise the selling price to cover the prepay
3. Refi w/ same lender. Some lenders, if you refi w/ them again, they will waive prepay. If he does this, make sure he refi to a program w/ no prepay, this is very important. Once he does this, he can sell. He will end up paying for closing cost for the refi but it should be much less than the $13k prepay.
excellent and quick advice. thank u immensely. i'll read further into his contract and see how it's worded, if anything's funny, i'll post again.