Well, as you guessed gooseman they are all overthe boards. A lot depends on who the lender was. Hard money lenders frequently put in big prepayment penalties because they want to make sure they collect their high interest rate for the full term of the loan, so that you don't repay them in 60 or 90 days.
Banks usually have no prepayment penalty but sometimes have a modest one where they feel like they spent a lot of time and/or money underwriting a deal and want to make sure they collect their interest long enough to amortize those costs.
Nobody is likely to put much of a prepayment penalty in a new note these days because rates are so low. The big risk for a lender is that they have booked, say a 10% rate note. Rates drop to 5. you refinance and pay them off, they just lost a lot of future income they were counting on.
These days by the time you pay them off rates are likely to be higher-- so there is little point in a pre-payment penalty
Goose,
Most prepays are 2-3 yrs and on conv. loans, no prepay on FHA/VA, usually you can pay up to 20% of the unpaid priciple bal in a year and not get hit with a prepay, the smart thing is to buy out the prepay for .500 to 1.00
I am a mortgage broker...pre payment penalties are garbage. If your broker has one tell him you want it taken off AND you dont want him to make up his points on the front. If he says its one or the other go elsewhere. I can get my people loans without a prepay. If its a primary residence the interest rate will be lower and I would suggest a 2 year arm interest only if the credit permits. If its an investment rehab or something you want to flip...there are PLENTY of alternatives then prepay. No prepay and no mortgage insurance.
I took a house sub to and the loan has a prepay on it till 2006. I’m in the process to find out what exactly the penalty is.
I wouldn’t mind refinancing the loan down to an ARM at 4% or lower rate so I can make an extra $450 a month off it. Currently it’s at 7.5%. I’m waiting to hear back from some people about what exactly the prepay on this loan is...
Is it possible to negotiate the prepay down or even totally get rid of it? By the way the lender is Ameriquest Mortgage.
God bless jjetts4--an honest mtg broker!!! He's right on. No prepayment penalty is what you should demand.
Having said that, I oftimes take a property "subjet to" which has a mortgage with a horrendous prepay penalty. They usually scale down over a 2-3 year period. A general rule of thumb is 80% of six months interest.
Well, as you guessed gooseman they are all overthe boards. A lot depends on who the lender was. Hard money lenders frequently put in big prepayment penalties because they want to make sure they collect their high interest rate for the full term of the loan, so that you don't repay them in 60 or 90 days.
Banks usually have no prepayment penalty but sometimes have a modest one where they feel like they spent a lot of time and/or money underwriting a deal and want to make sure they collect their interest long enough to amortize those costs.
Nobody is likely to put much of a prepayment penalty in a new note these days because rates are so low. The big risk for a lender is that they have booked, say a 10% rate note. Rates drop to 5. you refinance and pay them off, they just lost a lot of future income they were counting on.
These days by the time you pay them off rates are likely to be higher-- so there is little point in a pre-payment penalty
my first on my primary residence has a 6month interest penalty in the frist yr, 4month in the 2nd yr and 2month in the 3rd yr.
Goose,
Most prepays are 2-3 yrs and on conv. loans, no prepay on FHA/VA, usually you can pay up to 20% of the unpaid priciple bal in a year and not get hit with a prepay, the smart thing is to buy out the prepay for .500 to 1.00
I am a mortgage broker...pre payment penalties are garbage. If your broker has one tell him you want it taken off AND you dont want him to make up his points on the front. If he says its one or the other go elsewhere. I can get my people loans without a prepay. If its a primary residence the interest rate will be lower and I would suggest a 2 year arm interest only if the credit permits. If its an investment rehab or something you want to flip...there are PLENTY of alternatives then prepay. No prepay and no mortgage insurance.
Just my two cents.
Thanks for the info so far!
I took a house sub to and the loan has a prepay on it till 2006. I’m in the process to find out what exactly the penalty is.
I wouldn’t mind refinancing the loan down to an ARM at 4% or lower rate so I can make an extra $450 a month off it. Currently it’s at 7.5%. I’m waiting to hear back from some people about what exactly the prepay on this loan is...
Is it possible to negotiate the prepay down or even totally get rid of it? By the way the lender is Ameriquest Mortgage.
God bless jjetts4--an honest mtg broker!!! He's right on. No prepayment penalty is what you should demand.
Having said that, I oftimes take a property "subjet to" which has a mortgage with a horrendous prepay penalty. They usually scale down over a 2-3 year period. A general rule of thumb is 80% of six months interest.