Mortgage Question

Discussion in 'Credit Talk' started by Maer, Jul 8, 2001.

  1. Maer

    Maer Well-Known Member

    I recently refi'd my house. When I was signing papers I noticed a clause that there "might" be a prepayment penalty. I had always assumed a prepayment penalty was if you pay it off or refi in 3-5 years you will have to pay a penalty. I happened across an article today that prepayment penalties are sometimes for the life of the loan. Also, that paying extra on your mortgage (which I had intended to do) would also fall under a prepayment penalty.

    Any of you that have recently purchased homes, did you have this same clause? Is it true that it includes additional payments or is this just for extreme cases?

    Being that my loan is going to be resold, is it possible that I can fight it if the company does have these extreme penalties? I know I signed something stating there "might" be a penalty but it never explained anything like this?

    If anybody here doesn't know, could you at least point me to a good board where I can pose this question.

    GEORGE Well-Known Member

    I have a "RUN OF THE MORTGAGE" PRE-PAYMENT PENALTY...but it is only one months payment!!!
  3. Maer

    Maer Well-Known Member

    Is it only if you refi or sell? My worry is that I had intended to pay it off in 15 years. Now I am hearing that some penalties not only last the length of the loan but also include additional payments.

    I almost did a 15 year loan but figured I could add the extra payments myself and that way if anything ever happened I could always cut back on the payment.

    GEORGE Well-Known Member

  5. NanaC

    NanaC Well-Known Member

    I know we specifically asked about this and was told we had NO prepayment penalty of any kind. At closing,this was reinforced and, again, we were told the same thing.

    I had a mortgage once like you stinks.
  6. Momof3

    Momof3 Well-Known Member

    We have the same as you Nana, we made sure there was no pre penalty and I asked the title agent again at closing.
  7. NanaC

    NanaC Well-Known Member

    :) Of course, Mom..I can't believe how much our lives tend to run parallel..teehee...

    Race to pay it off first? ROFLMAO

    Hey, it's good, guarantees we'll be chatting for years to come!
  8. rogerjones

    rogerjones Active Member

    What State are you in?

    In California the law allows a 20% principal reduction per year without invoking the pre-pay clause. Theoretically that is where most clauses cover a 5 year period in California.

    To calculate a pre-pay in California: 80% of 6 months interest.

    $ 100,000.00 Loan @ 8.0%
    4,000.00 6 months interest
    - 800.00 20% Entitled to payoff
    3,200.00 Prepay owed upon Sale or Refi

  9. Tuit

    Tuit Well-Known Member

  10. Tuit

    Tuit Well-Known Member

    OOP's that doesn't work....just go to and then go to question and answer forum. Sorry

  11. Maer

    Maer Well-Known Member

    Thank you so much for this info. I am located in California. So as long as I don't prepay more than 20% per year I won't have the penalty?

    I'm going to check out these sites as well.

    Thanks again
  12. rogerjones

    rogerjones Active Member

    In California you are able to pay up to 20% per year on the principal balance each and every year without having any pre-payment problems.

    Contact your mortgage company and see what they say. If you have more questions, I can provide the California Code citation which addresses this item.

  13. Maer

    Maer Well-Known Member

    I would love the code!!!! I have been searching on Yahoo for it but am still sifting through the hundreds of possible sites.

    Also, I'm not sure if this makes a difference, but it is an FHA loan.

    I don't know who my mortgage company is. I just recently refi'd my house and was told by my broker that they immediately sell all loans. They do not service any of them. I guess I could contact him but that would mean waiting a day or two. Not one of my strong points.

    Thanks again
  14. rogerjones

    rogerjones Active Member

    FHA generally only has a one month pre-pay. If you close 5 days prior to the end of month to reduce the pre-pay to only 5 days.

  15. rogerjones

    rogerjones Active Member

    California Civil Code 2954.9. (b)

    SECTION 2947-2955.5

    2954.9. (a) (1) Except as otherwise provided by statute, where the
    original principal obligation is a loan for residential property of
    four units or less, the borrower under any note or evidence of
    indebtedness secured by a deed of trust or mortgage or any other lien
    on real property shall be entitled to prepay the whole or any part
    of the balance due, together with accrued interest, at any time.
    (2) Nothing in this subdivision shall prevent a borrower from
    obligating himself, by an agreement in writing, to pay a prepayment
    (3) This subdivision does not apply during any calendar year to a
    bona fide loan secured by a deed of trust or mortgage given back
    during such calendar year to the seller by the purchaser on account
    of the purchase price if the seller does not take back four or more
    such deeds of trust or mortgages during such calendar year. Nothing
    in this subdivision shall be construed to prohibit a borrower from
    making a prepayment by an agreement in writing with the lender.

    (b) Except as otherwise provided in Section 10242.6 of the
    Business and Professions Code, the principal and accrued interest on
    any loan secured by a mortgage or deed of trust on owner-occupied
    residential real property containing only four units or less may be
    prepaid in whole or in part at any time but only a prepayment made
    within five years of the date of execution of such mortgage or deed
    of trust may be subject to a prepayment charge and then solely as
    herein set forth. An amount not exceeding 20 percent of the original
    principal amount may be prepaid in any 12-month period without
    penalty. A prepayment charge may be imposed on any amount prepaid in
    any 12-month period in excess of 20 percent of the original
    principal amount of the loan which charge shall not exceed an amount
    equal to the payment of six months' advance interest on the amount
    prepaid in excess of 20 percent of the original principal amount.

    Hope this helps.

  16. Maer

    Maer Well-Known Member

    THank You so much!!!!!

    My only question now is this...section (2) says:
    (2) Nothing in this subdivision shall prevent a borrower from obligating himself, by an agreement in writing, to pay a prepayment charge.

    Now, when I signed my papers it did say "there might be a prepayment penalty". Of course, at that time I was certain that a prepayment penalty was if I sold or refi'd in the next few years which I have no intention of doing. By signing this did I "obligate" myself to pay a charge. Also, do you know if they can impose anything they want now?

    It is times like this I am glad I am in California. Almost makes this unbearable heat & smog worth it.

    Thanks again, you saved me hours of searching.
  17. GEORGE

    GEORGE Well-Known Member

  18. rogerjones

    rogerjones Active Member

    On your FHA loan you probably Do NOT have a normal Pre-payment. I would not worry too much about your loan if it is an FHA. FHA loans are designed to accommodate Increased Home Ownership. They are a very favorable loan for financially challenged buyers.

  19. rogerjones

    rogerjones Active Member

    Re: Mortgage Question - George


    I am from Norwalk. It is a small world.

  20. Maer

    Maer Well-Known Member

    Re: Mortgage Question - George

    I am in Temecula, just a bit north of San Diego. Still hotter than H*#( here lately.

    George: Do I understand you would rather be in southern California than Colorado????

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