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