NOTE:
A substantial payment is defined as any amount that exceeds 20% of the original principal balance.
Before you’ve chosen a PPM, make sure that you do not have to pay a penalty fee within the specified period of time if you sell your home.
Whether or not you choose to use a PPM is definitely a personal decision that depends greatly on both your current financial situation and how long you think you’ll keep your mortgage before refinancing or making a large payment against it.
Prepayment penalties or fees are only applicable during the prepayment penalty period or term.
Before choosing a PPM Mortgage be sure to obtain the following information from your lender in writing:
- The terms of the mortgage provision containing the prepayment penalty.
- The amount of the penalty that you will be required to pay.
- The time period in which the penalty will be charged if you prepay or make a substantial payment on your loan.
- Any other conditions under which the lender may charge you a prepayment penalty.
In addition, you should ask your lender several questions as you consider the pros and cons of a prepayment penalty mortgage, such as:
- How much will I save on my closing costs or fees?
- Will my interest rate be lower if I accept a PPM?
- Under what conditions will the lender enforce the prepayment penalty?
- Will the lender enforce the prepayment penalty if I sell my home?
- How is the prepayment penalty calculated, and how much will it be on my loan?
- When can I prepay the loan without incurring a penalty?
ALWAYS BE SURE to research all of your options as you look for the right type of mortgage for you. Remember, your lender should be available to answer all of your questions and to help you make an informed decision.
