Pros and Cons of a Pre-payment Penalty

What is a prepayment penalty? It is exactly what its name implies; paying your loan off before an agreed upon period of time; one, two or three years is the norm. The amount of your penalty can be calculated in one of two ways; percentage of the remaining loan balance or a certain number of months (usually 6) of interests. There are also two types of prepayment penalties, hard and soft. With a hard prepayment penalty you are obligated to pay this fee, whether you refinance or sell your home, before the penalty period expires. A soft prepayment penalty is not as stringent. You are released from the penalty if you sell your home, but if you refinance the penalty will be enforced. Be sure you know in advance what type of prepayment penalty, the duration, and the lender’s guidelines for your particular loan program. A prepayment penalty will also indicate that the loan program you applied for is an Adjustable Rate Mortgage. Be sure you know the full details of the loan program you are agreeing to. The Note you sign at the closing table will spell out the duration and how the penalty is calculated, but not whether it is a soft or hard penalty. This information needs to be obtained from the mortgage broker you are getting your loan through.
The main advantage in obtaining a mortgage with a prepayment penalty is that the initial interest rate offered may be lower over the duration of the penalty period, saving you hundreds, if not thousands of dollars in interest payments. The savings on your interest payments will depend on the size of your loan; the lower the loan amount, the less you save. The lender is in the business of making money, so if you pay this loan off early, they lose out on the interest they would have collected at the higher rate.
Whether or not a prepayment penalty is a wise decision for you depends on your personal financial goals. Do you intend to keep your home for a long or short period of time? Are you anticipating a substantial increase in income during the penalty period? Will you be able to comfortably pay the mortgage once the interest rate increases? These are questions only you can answer, and by answering them truthfully, you will make a wise decision.

Academy National Mortgage Corporation
Denise Wing C.E.O.
Certified Mortgage Lender
303-987-0622

What is a mortgage exactly?

Contrary to what you may think, a mortgage is not a loan. A mortgage is a lien on the property that secures the loan. Today, the terms mortgage and loan have come to be used interchangeably. They are related but, in fact, two different things. Lenders are well aware of this, so it is best that you are informed also.

Perhaps you are familiar with the terms mortgagor and mortgagee, but which is which? The term mortgagor refers to the party that borrows the money and grants, pledges, or gives a lien on his or her property as a security to the lender. The term mortgagee refers to the party that receives the lien as security, the lender

A mortgage loan has three components. Without them the loan would not be viable. Each component must have a value, or the loan cannot be calculated correctly. The components are, the size, the interest rate, and the terms.

The size of the loan simply refers to the amount of money you wish to borrow. The interest rate is the regular and recurring fee that the lender charges on the borrowed money. It has a direct baring on what your monthly payment will be. The lower the interest rate, the lower your payment. The term of the loan refers to how long it will take to amortize, or pay off the loan. It may be expressed in months or years. (30 years or 360 months)

Another term that needs to be addressed is points. A point is equivalent to one percent (1%) of the loan amount. On a loan of $100,000, a point would be equal to $1,000. There are two types of points, origination points and discount points. The origination points are fees that a lenders sometimes charges to process the loan transaction. Discount points are used to help buy down the interest rate. You can opt not to pay an origination or discount fee, but be prepared to pay a higher interest rate.



Academy National Mortgage Corporation

Denise Wing, C.E.O.

Certified Mortgage Lender

303-987-0622

Are you struggling to make your mortgage payment?

Recently FHA announced an initiative to assist homeowners who are struggling to meet the monthly payments on their Adjustable Rate Mortgages (ARM). This includes borrowers who became delinquent on their payments after the adjustment took place. If you meet the following criteria, this type of refinance could save you from losing your home.

1. Your present mortgage is a non FHA ARM that has reset to the higher interest rate.
2. During the 6 months prior to your ARM adjusting, your mortgage payments were current.
3. Evidence that you have sufficient income to make the mortgage payment on the new loan.

Additional allowance have been made by FHA to help as many borrowers as possible. Please contact Denise Wing with Academy National Mortgage and set up an appointment to discuss whether or not you qualify for this offer.

Academy National Mortgage Corporation
303-987-0622
dwing@academynational.net