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Some mortgages come with a provision that penalizes you for
paying off the loan balance faster. Such penalties can amount
to as much as several percentage points of the amount of the
mortgage balance that is paid off early.
Some lenders won't enforce their loan's prepayment
penalties when you pay off a mortgage early because you sold
the property or because you want to refinance the loan to take
advantage of lower interest rates as long as they get to make
the new mortgage. Even so, your hands are tied financially
unless you go through the same lender.
Many states place limits on the duration and amount of
prepayment penalty lenders may charge for mortgages made on
owner-occupied residential property. The only way to know
whether a loan has a prepayment penalty is to ask and to
carefully review the federal truth-in-lending disclosure and
the promissory note the mortgage lender provides you with. We
think that you should avoid such loans. (Many so-called no
points loans have prepayment penalties.)
This Homebuyers Tip was excerpted from
Home Buying For Dummies, by Eric Tyson, Ray Brown. © 1997
by Eric Tyson, Ray Brown, used by permission of IDG Books.
ISBN#: 1568843852
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