A Pre-Payment Penalty (PPP) is a penalty imposed by mortgage companies that offer mortgages to homeowners who have less then perfect credit or to borrowers who need special financing (such as 100%). A PPP is designed to keep borrowers from refinancing before the lender has had the opportunity to recover the costs of providing the mortgage and a small profit.
The amount of penalty varies greatly, from 1 to 5% of the principle loan amount, to six months interest. In some states, State Financial Departments regulate and limit the amount of penalties that can be placed on a mortgage. A few states, like Maryland, prohibit PPPs, unless the mortgage is provided by a National Lender (Bank or Financing Institution, usually with a N.A at the end of their business name.) who is regulated on a Federal level, and is not subject to state law.
How do I know if I have a PPP?
When you close on your mortgage, you are provided with and required to sign numerous disclosures. One of these disclosures includes a description of your PPP. This page will describe the type of PPP attached to your mortgage as well as the amount of penalty that will be imposed should you decide to pay off your mortgage, either through sale of your home, or refinance.
If I have a PPP, that means I can't refinance until it is expired, right?
NOT TRUE! In many cases, the PPP can be included in your new mortgage and still provide you with monthly savings, cash-out, and a lower interest rate. You will need to decide for yourself, but it can be worth paying the penalty if the benefits are great enough.
The bottom line is this: How much is coming out of your checking account? How much money do you have left over at the end of the month? If you are keeping your hard earned money in your pocket, it is usually worth paying the penalty.
Have Questions?
I would be happy to explain to you the benefits, as well as the consequences of your PPP to you should you have any questions. If there is no benefit to doing anything while you have a PPP in force, I will let you know. However, if there are benefits available to you, I will help you to seek them out and identify them so you can take full advantage of them, and keep more of your hard earned money in your pocket.
Call me today for a free, no obligation consultation!
1-866-788-2500 ext 231
or, click here to complete an online inquiry.
Sincerely,
Walter Getz
Your Mortgage & Credit Specialist
Pre-Payment Penalties