Prepayment penalty - Posted by phong le

Posted by Nate(DC) on October 02, 2002 at 19:21:45:

  1. There are two types of prepayment penalties: “hard” and “soft”. “Hard” applies if the loan is paid early no matter what. “Soft” exempts a bona fide sale from the penalty. Since you have indicated that he would have to pay on sale, I can almost GUARANTEE he would also have to pay on refi.

  2. If he just bought it recently, the reason he got a 10.95% rate is that he has bad credit. His credit probably hasn’t changed enough in the last few months that he could refi to a significantly better rate, even if he could get the penalty waived.

Basically, it sounds like he messed up and now he is stuck. Sorry!


Prepayment penalty - Posted by phong le

Posted by phong le on October 02, 2002 at 17:57:31:

A friend of mine recently bought his house ($294,000 face value of note with Rate of 10.95%). It currently has very little equity in it ($300,000 market value.) He’s trying to get rid of it but if he sells early, there would be a $12,000 prepayment penalty against him. Is it possible to just refinance to a lower rate without having to pay $12000 prepayment penalty so that at least he won’t pay too much money on the mortgage?

Re: Prepayment penalty - Posted by JB

Posted by JB on October 03, 2002 at 21:50:38:

I have a potential solution!

Your friend could always try to rent the house (at the cost of the monthly payment or for a profit) until the the prepayment period is satisfied.

Have your friend contact a realtor in his neigborhood that deals in rental property. The realtor will be able to tell your friend:
o Demand for comparible rental properties
o Comparible rental rates

If he can rent the property, your friend will then have the flexibility he needs to make a better decision on his next dwelling!