“I’m going to refinance soon and I want to be sure I don’t have a prepayment penalty. I told my loan person, but how can I be sure?”
***ANSWER:
My best friend is a smart, successful stockbroker. His mother refinanced her home awhile back and he told the lender she planned to sell soon and didn’t want a prepayment penalty. The lender assured him there’d be no penalty.
Then she went to sell a year later. $5,000 penalty!
My friend called the lender quite upset, but they refused to make amends, saying his mom had signed the papers with the penalty.
My point: Yes, tell your lender you don’t want a prepayment penalty. But to protect yourself, be sure you read the “Note” or “Trust Deed Note” carefully, especially the clause nicely called “Prepayment Privilege”, where any such penalty is spelled out.
By the way, could there ever be a time when you WOULD be okay with a prepayment penalty? Yes.
It might be to get other attractive terms. For example, very-low start rate adjustable loans have prepayment penalties. That makes up for the lender’s loss if you were to get a below-market start rate, then pay it off after a year.
