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Prepayment Penalty Mortgage Question

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http://boards.hgtv.com/eve/forums/a/tpc/f/9384011632/m/6803978967

Apr 19, 2013, 07:56 PM
s.thompson
Prepayment Penalty Mortgage Question
Being told by the lender that there was NO prepayment penalty clause in the mortgage we find that in the fine print that while it DOES in fact state that there is no prepayment penalty but then in the next sentence it also states that the finance charges (I believe this is what they are calling the total amount of interest paid over the life of the loan) can not be changed and will remain the same. So to my mind this is essentially saying that you can prepay but that there will be absolutely no benefit in doing so as you will not save any money whatsoever by doing so. Is this common? And legal? And saying what I think it is saying? Thanks for any help.
Apr 20, 2013, 01:49 AM
Idaho Resident
Hmmm, "s.thompson" think you were very smart to actually READ the document and have to agree that, if the total amount of interest calculated on the life of the originally stated term from inception will not be changed, then it is in effect a pre-payment penalty even is it claims that there is no pre-payment fee.

Hopefully, you haven't signed it yet. Have you?

If not, get this clarified to your satisfaction before you do. In either case, think it is time to consult with a well qualified real estate attorney to determine exactly where you stand. Almost sounds like playing semantics saying "no pre-payment FEE" while the other term you quoted does just that.

RED FLAG! Hope you resolve it and, btw, welcome to the real estate boards. Cool
Apr 20, 2013, 06:22 PM
BearCat49
Did you ask your lender about the clause? What was their response?

Hmmm - it sounds usurious.

Can you post the specific clauses, i.e both the prepayment penalty clause and the one you mentioned, plus anything else that may be relevant? Please omit anything personal.

Good Luck!
Apr 22, 2013, 04:35 PM
s.thompson
Yeah, thanks for the praise. I am sorta compulsive about reading ANYTHING I sign although I am finding out that a LOT of people aren't/don't. I'm getting told things like legal wording is too hard to understand, that I am not an expert at this stuff so who am I to question things and that they just trust the professional people who do this for a living to have done it right. Sigh. Of course none of the actual professionals have been the ones to say these things but they sure nod and smile when they hear them said. Positive reinforcement to the great unwashed masses, huh?


This is what I'm talking about:

This is from the Federal Truth-In-Lending Disclosure Statement. At the top there is the Annual Percentage Rate box then the Finance Charge box (e) that says: 'The dollar amount the credit will cost you.' $xxxx,xxx.xx amount. This is a very large amount and is I am fairly certain, the total amount of the interest that a person will pay on the loan over the full life of the loan.

Then down towards the center of the page under the heading 'Prepayment:' is the wording: 'If you pay off this loan early you may/will not (and the will not box is x'ed) have to pay a penalty. And you may/will not (and the will not box is x'ed again here) be entitled to a refund of part of the finance charge.'

And since the aforementioned finance charge seems clearly to be the interest amount on the loan for the full life of the loan, then it appears to me at any rate, that while they are not allowed/trying to smack you with an extraneous penalty if you pay the loan off early and clearly stating that, they are still dinging you by not adjusting the total interest on the loan if you make extra principal payments and pay the loan off early.

Is anyone else seeing this type of language in their mortgage lately?

Oh and by the way, this is a fixed rate, 30 year purchase (not refinance) conventional mortgage.
Apr 22, 2013, 05:16 PM
BearCat49
IMHO, the truth-in-lending disclosure merely reports required government disclosures and isn't part of the note/contract.

Also IMHO, it's explaining that you will neither pay a penalty nor receive a refund/bonus/discount if you decide to prepay. (*ETA, below)

The loan documents themselves should explain the actual interest calculation and cover any additional principal payments.

Hope that's helpful. Congratulations on your new home!

*ETA: For example, WRT a potential refund or bonus, the stated/contract interest rate would not go down from say 4% to 3.8% (or whatever), if you prepay. Or, you won't receive a bonus of $1,000 (or something), if you prepay.

Yes, BTW, the APR is calculated as if you retained the loan for its entire term and the total cost of the credit includes all interest charges under the standard amortization schedule over the loan's term - 30 years, for you.

This message has been edited. Last edited by: BearCat49,
Apr 22, 2013, 11:02 PM
Lakelark
You can have an attorney read it over but that is pretty standard language and BearCat49 explained it rather well.
Apr 23, 2013, 01:45 AM
Idaho Resident
Actually, I agree with both Bearcat and lakelark. I think everyone is saying the same thing - yes, you will not be charges a pre-payment penalty fee as such if you do pre-pay BUT it will not reduce the original amount of interest calculated at the inception of the loan based on those terms.

RED FLAG ~ don't do it.

To be bluntly honest, I've said before that it was a matter of semantics and I am glad that you caught onto it sooner rather than later by actually reading the documents but, bottom line, it is legal and, unfortunately, rather common in many instances of high risk loans.

My suggestion? Check your credit score, wait a while and take this time to improve it; then go searching again for a lender that doesn't include such an onerous provision in its contract.

Best of luck ~ post back with up-dates... Cool
Apr 23, 2013, 12:57 PM
BearCat49
Unless the actual loan documents differ significantly from what I would expect, I see no problem. Obviously, nobody can be 100% certain w/o reviewing all the applicable provisions.

If you decide to make additional principal payments or payoff the loan early, you'd pay less total interest. (As mentioned above, the TIL form contains standard, required disclosures.)

Incidentally, I would probably be one of the first posters to suggest you work with an alternative lender, if they were attempting to add an unexpected, hidden or improperly disclosed charge.

If you have any questions or need further clarification, do not hesitate to post back.

Good Luck!

This message has been edited. Last edited by: BearCat49,
Apr 24, 2013, 01:37 AM
Chuck Steak
Now may be a good time to contact the lender and have them verify what the payout would be to satisfy the mortgage early. This would be in writing and would be binding and would let you know exactly what cash you would need.
Apr 24, 2013, 09:24 AM
BearCat49
The info would already be included in the loan documents and they control -

The OP asked about the TIL.
Apr 24, 2013, 11:44 AM
real estate lady
Wait!!!!!!!!!!!!!!... you can not be charged for interest you are not using!!! If you prepay your mortgage you will be charged for interest up to that date( pro-rata for the next month because that is interest( pd.in arrears) to date of pay off),.. and you have paid the interest in each payment as interest is paid in arrears. Go to a title co. and they will help you with a pay off amount including contacting the lender for an estoppel lender (estoppel=payoff amount).

This message has been edited. Last edited by: real estate lady,
Apr 24, 2013, 04:54 PM
BearCat49
Agree, REL, as I mentioned above, the loan documents would explain the re-amortization (recalculation) of interest paid at the contract interest rate, if/when any prepayments are made.

The OP asked about the check-box on the TIL disclosure form. That item only confirms that no additional refund/bonus/discount (other than the standard reamortization/recalculation at the contract rate) is due and payable, if/when the borrower decides to prepay.

Sounds like the OP is purchasing a new home so a payoff figure isn't needed. If it was, normally the lender's servicing agent or the bank (that is, whoever collects the monthly payment) can provide a preliminary payoff figure.

This message has been edited. Last edited by: BearCat49,
Oct 25, 2013, 07:37 PM
Lakelark
Hmmm I would be very hesitant to use someone who can't comprehend simple board rules to review a document as complex as a mortgage.