American general early payoff penalty or Mortgage Prepayment Penalty is a provision in a certain mortgage contract that dissuades borrowers paying off their penalty early. In this article we will discuss thoroughly what is this Mortgage Prepayment Penalty.
Until recently, the American general early payoff penalty or Mortgage Prepayment Penalty were always used in mortgages, especially in loans that were given to those borrowers who were least credit worthy. During the economic recession and the downfall of housing market American general prepayment penalty created a stir. It was blamed for the increase of payment delinquencies and defaults from risky credit borrowers.
It has been said that these penalties hurt the borrowers that are already burdened with monthly payments of high interests. It has become an evidence of predatory lending and has accused mortgage lenders the abuse of borrowers who are totally clueless about their mortgage terms.
Because of this legislators and regulators created a set of strict rules and to control the improper use of prepayment penalties.
Mortgage Prepayment Penalty, What is it?
In a certain American general prepayment penalty in your mortgage contract states that in any event that the borrower which is you pays off the entire loan you are have to pay an additional penalty. Often times these penalties are expressed usually as a percentage of your total balance at the present time of your prepayment. Sometimes it is the specified number of months of interests.
With the continuous passing of time, most prepayment penalties will eventually decline or totally disappear. After the fifth year prepayment penalties do no apply anymore. However, partial prepayments can be done to the balance by up to 20 percent and it is allowable in any one year that has no penalty. A penalty can be hard or soft. A hard penalty can be applied to a home sale and also refinancing.
When Will It Be Inserted In My Mortgage Loan?
An American general early payoff penalty is very possible to be put on you before you sign the mortgage loan agreement. The prepayment can be as high as 20% of the loan annually. For the subprime loans, the lenders commonly get an early mortgage pay off penalty. There are also cases that the sale and refinance are forbidden (known as hard penalties), or there are cases that only the sale is forbidden (known as the soft prepayment penalty).
On A Sub-Prime Loan, A Prepayment May Be Needed
When you have a very low credit, a paid percentage may be your only option. Even if you are unaware of the American general early payoff penalty, sometimes, it can not be avoided. You see, if you have a low credit, you are, what they call a sub-prime borrower. Most lenders will require penalties in prepayments because the risk is considerably higher in refinancing than on loans that are prime.
Borrowers that are sub-prime profit from refinancing when the ratings of their credits become considerably higher even if the mortgage level is not changing. On the other hand, the prime borrowers only earn money from the refinancing process if there is a decline in interest rates. This makes up the primary difference between them and should answer the basic distinctions of the different names.
For the next two years, if you meet the needed payments and adding to that equation that there is no change in the rates of the market, you may be able to lower the percentage of the prepayment. This would make the lending that is sub-prime not that much earning if the nice loans will disappear after the initial two years. Getting into a American general early payoff penalty is definitely complicated, that is why consider your money first before getting into any trouble.
However, that doesn’t translate into you having no power in the negotiation. Even if you do not possess the power to remove the penalty in its entirety, you can still talk about the specific numbers. As an example, you can say: “This deal will be not longer than 4 years and its percentage will be not higher than 3.5%; prepayments will only accumulate 15% of the amount for the whole year excluding any penalties whatsoever and lastly, no penalties on the property sale”. You must always be suggestive but be very respectful, try to make the lender feel that you want to work things out and not end things in the wrong note.
Waving The Prepayment Penalties, Is It Possible?
If you are stuck with a high mortgage and a high prepayment penalty that you can’t handle then the only way out is to convince the opposing party to let you out of the deal. This is typically the case for people who doesn’t read the rules and regulations first and suffer an American general early payoff penalty. However, the lenders who have lent you have property or money can rarely have any reason to waive the deal. There is a big, fat chance that they will answer you with a stern “No”.
However, your chances might improve if you look for a different group willing to help you out. They will serve as the formidable friends that intercede in the negotiation process. If you are able to persuade this group or if you have friends in this group, it might work especially if the initial contract is too big and smell fishy (if it looks like they have tricked you or took advantage of your innocence).
Sometimes, the penalty can’t be avoided but that should be a rare occasion in your case because if it is usual, then you are not a good steward of your money. You should exercise self-control in your money because you might get into a big trouble if you are not. It might sound not that scary but when you are in that predicament, it is totally depressing and hard. Now that you know the basics of the American general early payoff penalty then you should now take control of your spending.