Pre-Payment Penalties
Taking out a Mortgage on a Kansas City House
Some mortgages come with a provision that penalizes you for paying off the loan balance faster. Such penalties can amount to as much as several percentage points of the amount of the mortgage balance that is paid off early.
What Some Lenders Do:
Some lenders won’t enforce their loan’s pre-payment penalties when you pay off a mortgage early because you sold the property or because you want to refinance the loan to take advantage of lower interest rates as long as they get to make the new mortgage. Even so, your hands are tied financially unless you go through the same lender.
Illegal in Some States:
Many states place limits on the duration and amount of pre-payment penalty lenders may charge for mortgages made on owner-occupied residential property. The only way to know whether a loan has a pre-payment penalty is to ask and to carefully review the federal truth-in-lending disclosure and the promissory note the mortgage lender provides you with. We think you should avoid such loans. (Many so-called no points loans have pre-payment penalties.)
In the state of Missouri, pre-payment penalties ARE allowed, so be sure to check with your lender for their policies and procedures on pre-payment penalties.
Ask T. J. Lamb, T.J. Lamb Real Estate, about mortgage options when buying a Kansas City real estate property.
This Home Buying Tip was excerpted from
Home Buying For Dummies (3rd Edition), by Eric Tyson, Ray Brown. © 2006 by Eric Tyson, Ray Brown, used by permission of Wiley Publishing.
ISBN-10: 0471768472
