Mortgage Prepayments and Penalties

Regular mortgage monthly payment already covers payment on interest. Any extra or additional payment refers to prepayment. Mortgagor or borrower often asks why I have to pay penalty on prepayment or refinance. Since the mortgage companies loses payment on interest, the mortgagor or borrower needs to pay penalty. The penalty on mortgage depends on the mortgage companies.

Mortgage companies give no penalty on every prepayment for fully open mortgages, while mortgage companies give penalty on every prepayment for fully closed mortgages. As for the partially open mortgages, mortgage companies give no penalty on prepayment with limitations. The mortgagors pay penalty when they exceed limitations.

As a mortgagor, you got three common prepayment privileges. First, annual lump payment allows prepay up to 15% of the original amount of mortgage loans. Second, annual increase on the regular payment allows increase of regular payment up to 15% for the remainder of the term. Finally, double up allows to double regular payment up to the remainder of the term.

Since the mortgagor pays more on top of the regular mortgage payment, the amount of time to repay reduces significantly. For example, the mortgagor saves 2 years and months on $150,000.00 principal, 6.5% interest, 25 year mortgage, and $500.00 additional payment (one time after a year).

Ditech : Predatory Mortgage Lenders: What You Need to Know

Predatory mortgage lending describes any lending practice that takes advantage of the homeowner. These practices can cause you to overpay for finance charges or even result in losing your home. Here are tips to help you avoid predatory mortgage lenders.

Predatory mortgage lenders use loopholes in the law to profit by taking advantage. If your mortgage lender or broker exhibits any of the following behaviors you should seek your mortgage elsewhere.

Avoid Mortgage Lenders and Brokers That:

• Ask you to falsify information on your application.

• Ask you to leave documents unsigned or ask for your signature on incomplete or blank documents.

• Fail to provide Truth-in-Lending statements, Good Faith Estimates, or HUD Settlement Statements as required by law.

• Ask you to refinance the mortgage at regular intervals as a condition of loan approval.

• Tries to get you to borrow more than the amount needed to refinance or purchase your home.

• Fails to disclose all closing costs or requires a balloon payment as part of the contract.

Unethical mortgage brokers require payment for finding the mortgage or referring business as a condition of working with you; while this is not illegal you should not do business with individuals engaging in this practice. You can learn more about avoiding predatory mortgage lenders and common mortgage mistakes by registering for a free mortgage guidebook.