Today the East Valley Tribune has an article on pre-payment penalties. Your very own AMG is quoted:
Now, dropping values mean some people already owe more than their houses are worth, Mesa loan officer Author said. And adding a penalty on top of that can make or break a deal, he said.
A year ago, an East Valley couple came to Ghimire hoping to refinance and give themselves some breathing room.
Then they learned they had a $9,000 prepayment penalty on their roughly $300,000 loan. Adding that to their new loan balance meant their payments would have risen, Ghimire said. So the pair decided to continue stretching to pay the monthly payments they already had.
The couple I refer to here didn’t even know they had a pre-payment penalty and I was the one to break this news to them in the middle of the transaction. What made it even more worrisome is they worked with an in-house lender in their office for that loan!
To avoid this type of situation always ask your lender if you have a pre-payment penalty when you decide on a loan program. Sometimes a rate sounds really good if you add a pre-payment penalty and you want to know this up front. Remember my advice, there is more to the apple pie than just the apple. Finally, always review documents carefully before you sign.Â