Under new federal regulations that went into effect in 2014, there are now stricter limits on mortgage lenders’ ability to charge prepayment penalties to homeowners. However, many homeowners still face prepayment penalties, and these penalties can often create significant problems for people seeking to move in the first few years after purchasing their home.
Even if you are planning to stay in your home for a long time, you never know what the future holds. A career change or some other life event may lead you to relocate sooner than you were expecting. As a result, before signing on the dotted line for your mortgage, you should take the time to understand whether any prepayment penalties are involved.
Tips for Avoiding Prepayment Penalties if You Haven’t Yet Purchased Your Home
If you are in the process of buying a home, now is the time to dig into your loan agreement to see what it says about prepayment penalties. If you are not sure how to interpret what your agreement says about penalties, you can hire a real estate attorney to assist you.
If your lender is trying to get you to sign a loan agreement that provides for prepayment penalties, you may have a few different options to avoid them. These include:
- Negotiating for points or a slightly higher interest rate in exchange for removal of the prepayment penalty.
- Shopping around for different lenders.
- Choosing a loan option that does not allow for prepayment penalties.
This last option should only be undertaken after careful consideration of the risks involved with the various types of mortgages available. The federal government only allows prepayment penalties on loans that are less risky to the buyer (in order to allow banks to protect themselves from losing money on a quick re-sale of the property), so choosing a different loan type in order to avoid prepayment penalties may not always be in your best interests.
Tips for Avoiding Prepayment Penalties if You are Seeking to Pay Off your Mortgage
If you have signed a loan agreement that includes a prepayment penalty provision and you are now trying to sell your home, you still have options to seek to avoid (or at least reduce) the penalty. Two of these options include:
- Wait to sell until the penalty window expires. Mortgage lenders can only charge prepayment penalties for a limited amount of time, and the penalties should be reduced each year. See if you can wait past a triggering date to either avoid the penalty or pay the next year’s reduced amount.
- Try to negotiate with your lender. You may be able to negotiate with your lender to have your prepayment penalty waived or reduced. Your ability to negotiate will depend on a number of different factors, including how long you have been paying on your current mortgage, whether you are seeking a new mortgage, and the exact terms of your loan agreement. Here too, an experienced real estate attorney will be able to help you understand and protect your legal rights.
Blado Kiger Bolan, P.S. | Real Estate Attorneys in Tacoma, WA
If you would like help understanding your loan agreement or negotiating with your lender to avoid a prepayment penalty, we invite you to schedule a consultation at our offices in Tacoma, WA. Call (253) 272-2997 or contact us online to speak with an attorney today.