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Refinancing Mistakes and Prepayment Penalties
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By Ben Afzal

Prepayment Penalties

A prepayment penalty is a charge you must pay to the lender if you get rid of their loan too quickly.

The prepayment penalty has a certain time period, such as 6 months or 2 years.

The loan documents come with a formula to determine your prepayment penalty. This can be based on the loan amount, interest rate, or other factors.

Prepayment Types

There are two types of prepayment penalties: hard prepayment penalties and soft prepayment penalties.

A soft prepayment penalty is charged only if a borrower refinances a property, but not if they sell the property.

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A hard prepayment penalty is charged if the borrower refinances or sells the property.

Most prepayment penalties are hard prepayment penalties.

Prepayment Advantages

The advantage of a prepayment penalty is that a lender may offer you a lower interest rate or lower closing costs in exchange for it.

If you plan on keeping a property for 5 years than having a 1 year prepayment penalty may be something you can live with.

Often times a

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This entry was posted on Thursday, October 19th, 2006 at 4:20 am and is filed under Refinance. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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