FHA loans have prepayment penalties

Mortgage Refinance Penalties

Refinancing penalties can be severe enough to affect the financial viability of a mortgage loan.

If you play smart, you can save a pile of money by refinancing your mortgage on cheaper terms. Before you can swap your old home loan for a shiny new one, however, you need to determine what mortgage penalties are to be paid. This will help you calculate the real cost of refinancing your mortgage and decide whether it is in the best interests of you and your family to refinance.

Prepayment Penalties

Lenders generally do not appreciate borrowers to repay their mortgages early. Paying early leads to a loss of income from interest payments. Lenders will go so far as to discourage customers from refinancing by including prepayment clauses in their mortgage agreements. If a lender only charges a prepayment penalty when you refinance, it is called a soft penalty. If the lender charges the penalty regardless of the reason you prepaid (such as selling your home), it is called a harsh penalty.

costs

While prepayment costs vary, they never get cheap. Think of it as a banking version of a marriage agreement: keep you loyal or pay the price. According to a report from the Maine Office of Consumer Credit Regulation, a typical prepayment penalty will cut you 5 percent on the loan balance. To illustrate, if you are refinancing a 100,000 mortgage and have a 5 percent prepayment penalty, it will only cost you 5,000 to get out of your existing mortgage.

legality

Prepayment penalties are a sensitive issue in the credit industry. Some consider them to be predatory lending, which is why they are either illegal or strictly regulated in many states. In Alaska, Hawaii, Iowa, New Jersey, Oklahoma, and Kansas, lenders are prohibited from applying prepayment penalties. Other states, such as Colorado, California, Illinois, Indiana, Michigan, and Minnesota allow prepayment penalties but limit their use after the first 24 months of a loan. On the other hand, federal government insured loans - such as Freddie Mae, Freddie Mac, and FHA loans - are not allowed to impose prepayment penalties on their loans regardless of state law.

Prepayment Fees and Taxes

The silver line of a mortgage prepayment penalty is that you can include the cost as part of your regular mortgage interest tax deduction. When filing your tax return, you must include the prepayment penalty on line 10 of Schedule A on your Form 1098. This discount does not apply if the lender charges you a contractual penalty for a specific service related to your mortgage, such as: B. lowering the refinancing mortgage interest rate.

Keywords: mortgage refinance penalties

Author: Gilberto Rhodes

Gilberto Rhodes is a 39 year old journalist. Food expert. Typical zombie geek. General Beer Advocate. Hipster friendly thinker. Researcher. Web guru.