What does "no prepayment penalties" mean?

Asked by LS, Dallas, TX Thu Jan 24, 2008

With FHA loans - I noticed they advertise "no prepayment penalties." Let's say your mortgage was 1200 monthly- I thought you could pay $2400 in advance and 1000 monthly for 12 months and that would be okay with your lender. (for those who would be more comfortable paying 1000 monthly instead of 1200 monthly in the first year.) I've now heard that's incorrect and you can't do it that way. Does anyone know how this works or where I can find concrete information about it in layman's terms?

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gm.unity, , 14904
Sun Jan 19, 2014
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Debt Free Da…, , 85260
Mon Feb 11, 2008
You can sell your home without a penalty. If you have a prepayment penalty on loan, you may be required to pay your lender 6 payments or sometimes a percentage of the loan.

Web Reference:  http://getprequalified.com
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LS, Home Buyer, Dallas, TX
Thu Jan 24, 2008
Thanks a bunch Durenda....................
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Durenda Fach…, , Coastal Tampa Bay area. Pinellas and Pasco Counties.
Thu Jan 24, 2008
That means that there are no additional charges to the borrower for paying all or part of the loan off early.

Typically with prepayment penaties, the penalty kicks in if the borrower pays more than for example 20% off in a given year prior to the end of the penalty period (2 years, 3 years, 5 years)

As far as your $2400 then $1000/mo over a 12 mo period on a 1200/mo payment. You would want to run that by your individual lender. The difficulty could be how they apply interest paid and principal reduction applied. You would want to make certain that they applied the 1st $2400 payment so the deficient $1000 payments would not be reflected as deliquent or non payment of the $200 difference

When you make your arragements with your lender, get those arrangements in writing on their letter head and signed and dated, then keep it with your important papers

Best of luck
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