A pre-payment penalty usually lasts for the first 2 or 3 years of your loan. Different states have their own maximum guidelines as to how much of a penalty can be charged or for how long a prepayment penalty can be charged. Check with your Michigan mortgage professional to see if your state has any restrictions regarding prepayment penalties. Federally chartered banks and lending institutions don't always abide by the state laws regarding pre-payment penalties. Therefore, consider your goals and future plans when obtaining mortgage financing when a pre-payment penalty exists. You may also want to ask for the differences in rate and payment with and without a prepayment penalty applied to your loan, if there is any difference at all.

If you know that you will be in a home for more than a year, and the prepayment penalty is only good for one year, it may be worth taking the prepayment penalty. Chances are you will get a lower rate, and that lower rate could keep your payments down for several years to come.

There are two types of prepayment penalties, hard and soft. With a soft prepayment you will not be penalized if you sell your home. A hard prepayment penalty is charged any time the mortgage is paid off early - regardless of if you sell or refinance.

The prepayment penalty is prepaid interest fee you paid to the lender. Thus, this amount can be used for the borrower's income deduction.

One thing to keep in mind is this - if you are applying for an adjustable rate loan, ask your mortgage professional if the prepayment penalty is longer than the initial fixed rate period. You don't want a 3 year prepayment penalty on a loan that has a rate that will adjust in 2 years.

Many loan programs have the option of "buying out" the prepayment penalty for a set fee at the beginning of the loan. This may be useful if you are unsure how long you will be in your house and don't want to worry about paying a large penalty if you pay off your loan early.

Prepayment Penalty - A prepayment penalty is a charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan early. Loans with a prepayment penalty usually have a lower interest rate.

Most states dictate if Pre-Payment Penalty (PPP) is allowed, and if so, the maximum number of years banks can impose PPP on a mortgage.

You should make sure you know what your prepayment penalty is and how long it is for. Some lenders offer a soft prepayment penalty which means you can sell without a penalty and some are hard which means if you sell or refinance you will have to pay the penalty.

In some cases, it may be worth your while to pay the penalty and refinance into a more beneficial loan product. For instance, you may have a adjustable rate mortgage (ARM) that has adjusted to a much higher rate. You need to consult a mortgage loan consultant to counsel you on whether this may be appropriate for your financial situation.

Most pre-payment penalties are calculated as 6 months of pre-paid interest on 80% of the balance of the loan. Interest paid on your home is tax deductible at the end of the year so basically it's a wash. A pre-payment penalty shouldn't stop you from getting a new loan if the benefits outweigh the costs.

Prepayment penalty - A lenders charge to the borrower for paying off the loan before the end of the term. It is present in some mortgages, preventing borrowers from rapidly refinancing.

To avoid pre-payment penalties you can pay added fees, called points, on your loan. These points are a percentage of your loan amount and are tax deductible. These points may also be less than the actual pre-payment penalty.

Some lenders impliment a 3-2-1 pre payment penalty. This is usually the more cost effective method for the borrower if they needed to pay the mortgage off early.

If you select an Adjustable Rate Mortgage (ARM) and you have a Prepayment Penalty (PPP) longer than your initial fixed term of your loan, beware! For example, if you have a 2 year ARM that means that your rate is fixed for that first 2 year period. After that it can adjust to where current interest rates are. If you have a PPP that exceeds that 2 year period, you could be stuck with either a steep rise in your payment each time your rate adjusts. Or, you could be faced with paying the penalty to be able to refinance to keep your payment from rising so drastically.

Under most circumstances, there will be no pre-payment penalty on conforming, FHA or VA loans.

Some prepayment penalties will only apply if you refinance your home within the prepay period, and not if you sell your home. This is generally referred to as a "soft" prepay.

Always ask if your loan will have any prepayment penalties included and ask what the difference would be without.

In most cases the soft prepay is two months interest

The states that prohibit prepayment penalties, still allow federally chartered banks to apply a pre-payment penalty on loans that they fund. You can ask your mortgage professional to stay away from the federally chartered banks, but sometimes those may be the only banks that can close the loan. So if you take a 2 year prepay, and know that you are going to be in the home for another 3 years (minimum), then it wold be worth taking the prepay and the new loan terms.

Hard Prepay penalty pertains to a penalty whether you sell or refinance while the soft pre-pay only pertains to a penalty if you refinance. The soft prepay will not affect you if you sell.

When obtaining a loan with a pre-payment penalty make sure that the prepayment penalty does not exceed the fixed part of an ARM loan. If you have a 2 year ARM loan then you probably do not want to have a prepayment penalty that lasts for 3 years or even worse 5 years. Usually the longer and larger the prepayment penalty the more generous a lender may be with their rate. Also, if you know you will be moving within the next 2 years make sure your prepayment penalty is no longer than 2 years unless it is a soft pre-pay which will allow you to sell without being penalized.

Some states prohibit prepayment penalties.

A penalty may or may not apply to repayment resulting from a home sale. If you are 100% sure that you won't be selling your home soon then it may be a good idea to get mortgage financing that includes a prepayment penaly, especially if the lower interest rate in trade is well worth it.

Most lenders will allow you to buy-out the pre-payment penalty. The charges will vary among lenders.

In order to verify whether or not your loan carries a pre-payment penalty, be sure to look for the Pre-Payment Rider when signing your loan documents at closing. If your loan does carry a penalty, it is required by law that this rider be included with your mortgage documentation and that you sign it.

Most pay-option arms come with a pre-payment penalty either a soft or hard pre-pay.

Some loans will have a combination of a hard pre-payment penalty and a soft pre-payment penalty. Usually set-up as hard to start, then transitioning to a soft.

If you pay off your mortgage before it is due, you may be charged a fee -- this is referred to as a prepayment penalty.

Pre-Payment penalties generally enable lenders to offer borrowers lower interest rates for the life of the loan, so if you are going to be in your house longer than 2 years, a pre-payment penalty can prove to be more benficial than the word "penalty" would indicate, resulting in large savings over the long term, especially on fixed rate loans.

Prepayment penalties on a loan offering can change the rate you pay for your mortgage. Many times you can pay a higher rate to reduce your prepayment penalty with that lender. This is one of many reasons why different mortgage brokers quotes may vary with the same borrower information.

Prepayment Penalty can be used as a tax write-off at the end of your current year. Please advise your tax consultant in regards to laws and guidelines. He/she may help you recoup the costs if you should break the contract between you and your bank.

Paying a prepayment penalty on some types of loans can carry a lower interest rate than not having one. If you feel certain that you will be remaining in the home for a period that exceeds the length of the penalty it may be a wise decision to go with the lower rate.

Many of today’s loans come with prepayment penalties. Typically, a prepayment penalty is charged if the borrower repays the loan within the first 2-3 years. This payment is usually equal to six months interest. If you are just a few months out from the expiration of your penalty period, you may want to wait it out before refinancing. However, even with a penalty the long term savings of locking in a lower fixed rate today could more than cover the penalty.

Depending on the state you live in and whether your loan was originated as a purchase transaction or a refinance, some states do not allow Pre-Payment Penalties (PPP) imposed on pre-paying a loan that was originated as a purchase. Others have laws that limit the number of years in a Pre Payment period for different transaction types.

Most banks let you pre-pay up to 20% of the outstanding balance without subjecting you to a PPP.