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John,
That is a very complicated question and I'll take in on in simple general
terms that may leave out some situations.
1) As a rule, sub prime borrowers have prepayment penalties on their loans,
unless the borrower agrees to a 1% higher rate, thus buying out the
prepayment penalty.
2) When the borrower does not want to pay origionation fees we can add a
prepayment penalty to avoid charging points or fees.
Some lenders say that the prepayment penalty is to the advantage of the
borrower because it protects the borrower from him or her self, prevents
them from refinancing again and again thus stripping out their equity.
Especially true when the borrower has a high LTV or low FICO, then forcing
the borrower to wait to refinance means financial discipline, and deferred
pleasure, ect. Many low fico and high ltv borrowers will refinance every
12-18 months out of necessity.
Thanks for listening.......
<jhurlbut@gmail.com> wrote in message
news:1159058592.716411.111550@k70g2000cwa.googlegroups.com...
> I am a Real Estate agent and many clients have asked me this question
> and it seems as though mortgage brokers avoid it. So I thought I would try
> it here.
>
> When do mortgage brokers decide that a particular loan is deserving of
> the dreaded prepayment penalty?
>
> It seems as though there would be added incentive by the lender that
> the loan will eventually be sold to to have a prepayment penalty to
> assure they would receive a certain amount of interest payments. Is
> that incentive offered to the person brokering the loan? Similar to
> YSP?
>
> Also, anytime any of my clients have applied for a loan and have been
> told they have a pre-pay penalty, I tell them to ask the broker if
> he/she will remove it and almost invariably they do. So it doesn't
> seem as though the pre-pay penalty is a mandatory item. It definitely
> does not benefit the consumer, it does benefit the lender. I am
> assuming it must also be a benefit to the broker.
>
> Any answers would be greatly appreciated.
>
> John
>
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Re: When are prepayment penalties added to loan contracts?
