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Payment Penalties

Many borrowers assume that lenders are happy to get their money in advance or on different payment schedules. This is not necessarily true. Lenders structure a new home loan to make money. They structure payments to get a maximum profit from interest and fees. Borrowers who make their payments early or late affect this delicate balance and may mean money losses for the lender. In order to counteract this, lenders charge payment penalties so that even if the borrower does not pay as expected, the lenders still make money. There are essentially two sorts of payment penalties: late payment penalties, and pre payment penalties. Late payment penalties are easy to understand. If you are late paying your monthly payment on a new home loan, home equity loan, debt consolidation loan, or other financing, you are charged additional fines and fees in addition to the amount that you owe for that month. However, many borrowers do not understand that there are also pre payment penalties for those who want to pay off their mortgage faster. Not all lenders charge pre payment penalties, but many do. If you suddenly can afford to pay off your mortgage sooner, you may wish to do so. However, the lender stands to lose tens of thousands of dollars in interest if you do this. Pre payment penalties ensure that the lender still make money from the loan. Pre payment penalties can not only affect paying off loans before their term, but they can also affect mortgage refinancing. Since most mortgage refinancing solutions involve paying off your current lender in order to take on a new lender or loan, pre payment penalties may apply. To ensure that pre payment penalties don’t cost you extra, it is important to always ask about them before signing for a new home loan. While many lenders are reluctant to talk will pre payment penalties, they will answer your questions if you ask. Even if you do not think that you will be able to afford paying off your mortgage sooner, you may want to consider mortgage refinancing at some point in the future. Knowing what pre payment penalties you will be responsible will also ensure that you can make the right decisions when it is time to take on mortgage refinancing options.



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