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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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