Make sure all the mortgage loan terms are disclosed to you before signing
any documents.
Prepaying means paying off the entire mortgage
or a large portion of the principal within a specified period of time.
Some lenders charge a penalty fee if you sell your house. Check with your lender
to see if a fee will be charged if:
you sell your home
you refinance
your loan
you make a substantial payment against the mortgage principal
Use our PPM worksheet[PDF 40K]
to compare PPM and non-PPM products and best understand the differences.
Make sure all the mortgage loan terms are disclosed and you understand them before signing any paperwork.
The PPM Full Story:
A mortgage with a prepayment penalty option
requires you to pay a penalty or fee if all or most of loan amount is repaid within
a certain time period (generally ranging from 2 to 5 years from the start of the
loan). A prepayment penalty option can be found on different types of mortgages,
like a 15- or 30-year fixed-rate loan or adjustable rate mortgages.
Remember, a prepayment penalties option is just that, an option – never a requirement.
Make sure all the mortgage loan terms are disclosed and you understand them
before signing any paperwork.
What exactly does “prepayment”
mean? Prepayment simply means paying all or part of a mortgage debt before
it is due. This could mean refinancing the mortgage or making substantial payments
against the principal. A substantial payment is generally defined as an amount
that exceeds 20% of the original principal balance.
What do
I receive in return for selecting a PPM? The benefit of selecting a PPM is
usually reduced fees or a lower mortgage rate. When considering a PPM, you should
compare a PPM product to a product that does not contain a PPM. Use our
PPM worksheet[PDF 40K] to help identify the difference between these two products.
What if I sell my home within the specified prepayment time period?
Some lenders waive the prepayment penalty fee if you sell your home but charge
the fee if you refinance your loan. Confirm with your lender to see when a fee
would be charged.
How can I determine if a prepayment mortgage
makes sense for me? Before choosing a prepayment penalty mortgage, you should
assess how long you will keep the mortgage before refinancing or making a large
payment to understand the probability of incurring a penalty. In addition, you
should understand the amount if subject to the penalty and how long it would take
to break even if you decide to prepay and incur the penalty.
Always be sure to research all of your options as you look for the right type
of mortgage for you. If you need further assistance, you may wish to contact a
homeowner education or housing counseling agency in your area.
