Financing in Denver>Question Details

Trulia Denver, Home Buyer in Denver, CO

Is there a penalty for paying of a mortgage early? If so, why?

Asked by Trulia Denver, Denver, CO Wed Mar 6, 2013

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Ray’s answer
With mortgages originated currently you won't find pre-payment penalties. With loans originated 5+ years ago you may have a pre-payment penalty (which would be outlined in your NOTE.

The one thing to pay attention to is how interest is calculated on a payoff (at the time of payoff). If you have a Conventional or VA loan the interest is calculated on daily per-diem. So the payoff will include interest through the date of payoff. However, FHA calculates it on monthly per-diem. So if you payoff your FHA loan on the 1st, 5th 20th, or last day of the month the payoff will be the same. It is always best to pay an FHA loan off as late in the month as possible.

Ray Williams
Denver's Mortgage Maestro
Summit Mortgage Denver
1 vote Thank Flag Link Sat Mar 23, 2013
BEST ANSWER
Trulia,

Some home loans have a pre-payment penalty and some don't. I counsel my buyers to be sure and ask for a loan without a pre-payment penalty. The bank is always about how much interest they get on a loan as the bottom line. The longer the they keep the loan in place, the more interest they can earn. So they can monitor and manage this by charging a penalty for paying of early that can be in the range of 6 months of interest. There are many loan programs out there today that do not require this penalty. You should ask and be informed about this up front and it will also be disclosed at the closing table by the title company as they close the mortgage portion of the transaction.

Robert McGuire ASR
Realtor/Consultant
Your Castle Real Estate
Direct - 303-669-1246
http://about.me/robertmcguire33
1 vote Thank Flag Link Sat Mar 9, 2013
If you can, it is BEST to pay a mortage off early, because you will save BIG $$$$$$ on interest.

Now, you will have to make sure to ask your lender if there is a pre payment penalty. You will also want to READ all the terms and conditons of your loan. MAKE SURE BEFORE HAND if you can pre pay w/o a penalty.


Kawain Payne, Realtor
1 vote Thank Flag Link Sat Mar 9, 2013
You need to check you mortgage documents. The prepayment time frame was usually 2-5 years, but loans with prepayment penalties have not been originated recently. They were usually tied to higher interest rate riskier loans. The prepayment penalty only came into play if you paid the whole loan off, or a large portion such as 30-50% a year within that time period. If you make extra principal payments such as $100 extra, or twice the payment you should be fine.

Chris Yedo ABR CRS CNE SFR
Broker Associate
RE/MAX Unlimited Inc.
303-520-7190
DenverAreaHomes.com
1 vote Thank Flag Link Thu Mar 7, 2013
You would need to read the terms and conditions of your loan to find out 100% for sure.

Kawain Payne, Realtor
Prudential California Realty
0 votes Thank Flag Link Tue Jun 11, 2013
It depends on your mortgage - look it over and see if there's a pre-payment penalty. If not, then you should be fine. As to why there might be one - lenders make money as long as you owe them money, not after you pay them back!
0 votes Thank Flag Link Wed Mar 6, 2013
yes, if there is a prepayment penalty. Why do they do this?? Because they don't make money on the money they lend if you pay it off right away. They'll nearly non-existent now but double check. Usually the prepayment period is 2 years.

Kristen Crabtree
Broker Associate
Frontgate Realty Group
303-875-0123 cell
http://www.frontgaterealtygroup.com
0 votes Thank Flag Link Wed Mar 6, 2013
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