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New Casa!, Renter in Las Vegas, NV

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

Asked by New Casa!, Las Vegas, NV Tue Mar 26, 2013

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How did this work out for you? did you review your loan docs? Did you have a prepayment penalty?


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Robert Adams
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0 votes Thank Flag Link Fri Sep 20, 2013
Most mortgages do not have a pre-payment penalty. When Congress investigated why so many foreclosures, sub-prime mortgages with pre-payment penalties were part of the reason.

To be sure, check your closing documents. This is a feature of your mortgage that would have had to be clearly disclosed to you at closing.

Ray Stevens
Branch Manager
0 votes Thank Flag Link Fri Sep 20, 2013
You need to read your loan docs. Some loans have "prepayment penalty". Most do not but some do.


Best Regards,
Robert Adams
Broker/Salesman
The Adams Team at
Rothwell Gornt Companies
C:702-349-9175
O:702-932-8813
F:702-932-8826
RobertAdams@LVrealestateHELP.com
http://www.LVrealestateHELP.com
0 votes Thank Flag Link Thu Mar 28, 2013
Sometimes.

Why? Because there are a lot of up-front costs that go into creating the loan. If it's paid off in the first couple of years, the profit from the mortgage may not offset the costs of setting the loan up. I'm just making this up, but let's say banks calculate that the average mortgage goes for 7 years (that's about right). So they calculate their profits on the assumption of a mortgage lasting 7 years. Now, they know that some people certainly will sell, move, etc., before that point. But if people get rid of the mortgage too soon, it'll drive profits way down.

Here's an analogy: Life insurance companies know, on average, just how long someone like you will live. Again, just making this up, but let's say they know a health man age 35 will--statistically--live another 45 years. Some will die sooner; some will die later. But they don't want someone taking out a policy and then committing suicide. So many build into their policies a provision that suicide won't be paid off in the first two years of the policy.

Hope that helps.
0 votes Thank Flag Link Tue Mar 26, 2013
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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With most modern day mortgages no, but some do. it is to make sure homes are purchase owner occupied and not bought, fixed and sold ona residential mortgage instead of a commercial one. Some banks want to guarantee a certain years interest as well but with todays low rates, it is mainly to discourage flippers.
0 votes Thank Flag Link Tue Mar 26, 2013
You will have to read your documents;
Some do, some don't.

Why? So that they can make more money.
0 votes Thank Flag Link Tue Mar 26, 2013
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