Posted by David Butler on December 12, 2000 at 22:46:43:
Hello IB,
Your man is right, and yes, lenders often charge a higher “add-on” rate when waiving the prepayment fee (which of course, they have to do in states where the fee is not legal). Don’t know how NJ specifically treats that matter, but lenders will generally find a way around it, in terms of making it up somewhere else. In the scheme of life, money seeks the path of least resistance, and that’s the nature of the financial markets.
Not sure what you mean by “…the difference between an “institutional” lender and say one that lends in the secondary market?” The secondary markets are where existing loans are bought and sold between lenders and various investors. There are some specialists who operate primarily in those markets as lenders, offering “rediscount lines” to the entities that are doing the actual buying and selling. With the exception of a select billionaire or two, most of that activity is intitutional, in that it will frequently come from large pension funds, insurance companies, and occasionally an REIT or two.
Illegal Prepayment Fee/Penalty?? - Posted by IB (NJ)
Posted by IB (NJ) on December 12, 2000 at 21:38:27:
This topic came up in a post last week concerning a mortgage I’m in the process of getting. An Investor from NJ stated that prepayment fees/penalties were illegal in the state of NJ. Clarification was requested by a number of members on the main board but none was given (I don’t think). Anyway, I finally came across my Essentials of New Jersey Real Estate book (the same guide a realtor uses to study for their license) and came across this statement regarding prepayment fees in NJ:
“Under New Jersey Law an institutional lender may not impose a prepayment fee or penalty if a mortgage is fully paid off earlier than was originally planned”.
That’s all that was stated under the “Prepayment” section of my book. My question is, what exactly is the difference between an “institutional” lender and say one that lends in the secondary market? Or are they both considered “institutional” lenders? I’m getting a conventional loan through a “licensed mortgage banker” who stated that I may have to pay .5% to waive a prepayment penalty. Does this make sense? The lender is based out of Maryland and the loan is for a property in NJ.