Be On the Lookout for Mortgage Prepayment Penalties
You buy the house, sign the papers and start paying your mortgage.
A year later, you want a mortgage refinance, get a better rate, find some more money.
You do … and that’s when you find out you have to pay prepayment penalties. Oops.
Want to sidestep this mistake? Rock Financial’s David Hall, courtesy of The Detroit News, has advice for those that do:
- When you approach a lender for a mortgage on a new home, don’t just check the rate and terms. Make sure there are no prepayment penalties.
- Don’t accept a loan with these penalties.
- If the mortgage lender won’t approve a penalty-free loan, go somewhere else.
Remember: Managing your mortgage is as important as managing your assets. Make sure you receive the right home purchase loan for your particular financial picture.
Earlier this decade, short-term interest rates dropped so low that many people took out ARMs, or adjustable rate mortgages, to save money and get a lower monthly mortgage payment, Hall said.
In 2007, as much as $1.5 trillion in ARMs will reset to a rate higher than today’s long-term interest rates, he noted. People with ARMs might want to refinance to 30-year fixed rates, but a prepayment penalty will cost thousands of dollars. They’ll be trapped.
Be careful and be aware.