Tuesday, July 24, 2007

Financial Tips

Watch out for that Pre-Pay Penalty!

If you are thinking about selling your home, make sure to check your existing home loan(s) for any pre-payment penalty. They can be quite stiff!

Remember back when you were setting up your mortgage, and perhaps you got a better deal by including a pre-payment clause? The lender gave you a better deal because they thought you might stick around for awhile sending them regular checks. They like checks! Well, if you go away before 3 years or 5 years (depending on your own loan), you could get stung with a hefty penalty costing you thousands of dollars.

Even if you are selling your home close to the date, it could throw a wrench in the process. Say you want to schedule close of escrow for right after the pre-payment cut-off date, but if you submit a loan payoff demand even 24-hours before the the penalty phase ends, you could still owe the fee. So, watch the dates in addition to watching the money.

For more on pre-payment penalties, including a great summary of why they exist, check out Mike Mueller's blog. Or if you have further questions about the little details you have to watch out for when selling your home, let me know. I'm always happy to help. I can be reached at 510-547-5970 x57 or MSmartt@jps.net.

1 comment:

Mike said...

Hi Mary !
Thanks for the mention.
The other item I might mention is that while the typical Pre-Pay is 6 months of Interest - you really need to read your original "Pre-Payment Rider" which should be the page following your Note. Some PrePays are Hard, some are Soft, some are declining with the term. Calling your mortgage professional isn't going to give you the answer. Calling the lender isn't always accurate. The best and only way is to read the Rider you signed. You could always take that to a Mortgage Professional and let them decipher it for you.

I've seen payoff demands that were inaccurate. I always compare them to the original note to make sure.