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Trulia Austin, Home Buyer in Austin, TX

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

Asked by Trulia Austin, Austin, TX Tue Mar 5, 2013

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The real underlying story is that loan interest is largely front-end loaded. Lenders don't have to charge pre-payment penalties, because lenders make a bundle during the first 5 years of a 30 year loan.
2 votes Thank Flag Link Tue Mar 5, 2013
Most loan today do not have a prepayment penalty. In some cases second lien lenders will charge a PPP if you pay the loan off in under 12 months. This is because they do not charge much in the way of upfront fees and if the loan is paid off too quickly they can lose money on the loan.

In general most loans these days do not have a PPP and if so you should in most cases avoid those that do.

Hope this helps.

_______________________________________
Don Groff
REALTOR® | Mortgage Broker
Austin Real Estate Pros | 360 Lending Group
o 512.669.5599 m 512.633.4157
listings@dongroff.com | http://www.AustinListed.com
1 vote Thank Flag Link Tue Mar 5, 2013
I have read that there are no PPP these days because they are loading the repayment component at front end with interest. Friends it means the same thing,they are covering up the whole interest.Why do we want to pay early? To reduce interest burden when one has liquidity and get off with debt.So they should charge interest upto the date one pays and only on outstanding amount for time period.There are 3 factors. 1. Interest. 2.Outstanding amount(How may installments).3.How long which amount(Installments) is outstanding.

They will confuse the client in interest or duration and duration of each installment.
0 votes Thank Flag Link Sun May 4, 2014
Sometimes depending on the lender, there is, but I don't see this too often. If you want to know for sure, call your lender to ask if there is one, and they will tell you. They do this in case you pay off your mortgage "too soon", and then they'd lose money.

Thanks,
Holly McCormick
EXIT One Realty
512/699.5590
http://www.hollymccormick.com
holly@hollymccormick.com
0 votes Thank Flag Link Wed Mar 6, 2013
It is not common these days to see pre-payment penalties but you should discuss this with your lender if you are getting a loan.
0 votes Thank Flag Link Tue Mar 5, 2013
The lenders would charge a pre payment penalty because if loan is paid off soon then the banks would loose out on the interest income over the longer life of the loan. Most loans today do not have a pre payment penalty. Not sure but a prepayment penalty may not be allowed any longer. Seems that some loans have some charge if loan is not kept in place for a certain period of time. Ask all the questions of loan officer when applying for a mortgage loan.
0 votes Thank Flag Link Tue Mar 5, 2013
Older mortgages sometimes had pre-payment penalty clauses usually added because the loan had a below market interest rate to start. They don't allow those any more, so odds are you don't have that, but to be sure, check your mortgage documents. The best thing to do is to get an amortization schedule and use that to pay off your early, without having to pay a refinance fee or a bi monthly fee. Of course that depends on your current interest rate. Most all loan questions can be answered with a calculator, so if you have any further questions, let me know.

Don Moriarty
Broker Classic Texas Properties
512-413-5599
0 votes Thank Flag Link Tue Mar 5, 2013
Lenders make money from interest on the loans over time. When borrowers pay off loans early, the lenders make less money, so lenders often protect themselves by charging penalties for paying off loans early.
Check the terms of your loan agreement to see if such penalties will apply to you.
0 votes Thank Flag Link Tue Mar 5, 2013
In general, not in Texas. There may be some really old mortgages that have a penalty, but in Texas it's not allowed, I'm just not sure how long it has been. As for a private mortgage (eg seller financed, that's a whole different ball of wax and it depends upon who drew up the documents and who they wished to favor when they did it.)

Ron Cullinan
Avalar Austin
GRI, CRS, ABR, CLHMS, e-Pro
512-799-3239
austin_realtor@earthlink.net
http://www.austinonlinehomes.com
0 votes Thank Flag Link Tue Mar 5, 2013
It depends...you need to look at your loan documents and check.
0 votes Thank Flag Link Tue Mar 5, 2013
You should check your mortgage documents because it will have a clause about pre-payment penalties if any do exist. The answer is in your loan documents.

The reason for pre-payment penalties is so that the banks can receive a payment for all the lost interest that they would have collected had the loan been paid off through the regular installments.

You can easily pay off your mortgage or reduce the amount owed by making more than the regular payment to lower the principal balance each month. It will cut your overall loan amount and term considerably.

I hope this helps. If you have any questions, let me know I would be happy to talk business with you.
0 votes Thank Flag Link Tue Mar 5, 2013
Most mortgages these days do not have a prepayment penalty.
If you are concerned about a loan you already have, it will be spelled out clearly in your promissory note.



Tom Burris
Mortgage Banker
http://www.servicefirstmckinney.com/
(214) 763-4629 cell/text/nights/weekends(Really!!)
tburris@servicefirstmtg.com
Lending all across the entire Great State of Texas!!
NMLS# 335055
Search Dallas area MLS for FREE. No registration => http://www.ntreisinnovia.net/cgi-ntr/BR_login?0501134
0 votes Thank Flag Link Tue Mar 5, 2013
I'm refinancing and my GFE for the new loan states that I do NOT have a prepayment penalty. Therefore, why does it say I will NOT be entitled to a refund of finance charges? Will I be liable for the uncollected future finance charges?
Flag Thu Oct 30, 2014
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