Prepayment Penalty

Prepayment Penalty means a lender will charge a fee to the borrower for paying off the entire loan or a large portion of the principal (generally an amount that exceeds 20% of the original principal balance) before the end of the term of the loan, and with the "prepayment penalty mortgage" (PPM), that specified period of time for the penalty in effect range is usually between 2 to 5 years from the start of the loan.

Ask if the mortgage loan you are applying for is a Prepayment Penalty Mortgage (PPM). A Prepayment Penalty Mortgage (PPM) is your choice, never a requirement. You should be able to pay extra money each month if you choose, on your home mortgage loan or payoff the entire amount at any time. Watch out for loans that charge steep penalties for overpaying each month or paying off the loan early.

The benefit of selecting a Prepayment Penalty Mortgage (PPM) is usually reduced fees or a lower mortgage rate. If you know you will live in your home longer than the penalty in effect range, and you know you will not be making extra payments or pay off the mortgage loan during this period, than a Prepayment Penalty Mortgage (PPM) may be what you want. But ask anyway, what the penalty fee is if you were to make extra monthly payments, or pay off your loan before the 2 to 5 year period, or if you decided to refinance or sell your home.

You should compare a prepayment penalty mortgage (PPM) to a mortgage that does not contain a prepayment penalty, that is, interest rates and fees, to best understand the differences. You decide if a Prepayment Penalty Mortgage (PPM) would be right for you. Ask your mortgage lender what "penalty or fee" will be charged if:

• 1. You make a substantial payment against the mortgage principal during the penalty in effect range.
• 2. You refinance your mortgage loan during the penalty in effect range.
• 3. You sell your home during the penalty in effect range. (Some lenders charge a penalty fee if you sell your home and some lenders waive the prepayment penalty fee if you sell your home) Confirm with your lender to see when a fee would be charged.

Remember, a prepayment penalty option is just that, an option, never a requirement. Make sure all the mortgage loan terms are disclosed to you and you understand them before signing any paperwork. Always be sure to research all of your options as you look for the right type of mortgage for you. If you need further assistance, you may wish to contact a homeowner education or housing counseling agency in your area.

Always check with the lender if you can pay extra payments or pay the entire loan off early (if you choose) without a penalty.

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