Watch out for mortgage prepayment penalty |  Dear
Money Matters,
I have bad credit, and bought a home last year. The
lender said I couldn't pay off the loan in advance until I'd had the loan for
at least two years. Have you ever heard of anything like this before? -- Cass
 Dear
Cass,
I consulted with my friend and colleague
Peter Miller, a real estate specialist and the author of The
Common Sense Mortgage. Peter suggests your situation may involve some
sort of prepayment penalty. This, as the name implies, socks you with a fee should
you pay a loan off faster than the prescribed payment schedule. Nor is it a mere
slap on the wrist; some prepayment penalties add up to six months' interest, which
can means thousands of dollars out of your pocket.
Many
states place limits on prepayment penalties. So your first step should be to call
your state banking commission to see if prepayment penalties are allowed where
you live and, if so, how large they can be. In fact, the subject of prepayment
penalties is something that every mortgage shopper should bear in mind. All
too often, mortgage holders complain that they were never informed about a prepayment
penalty before they signed on for a loan. So, if you're thinking about refinancing
your current mortgage or buying a new home, make certain you ask about any sort
of prepayment considerations that may apply. The other
issue to be aware of is your comment about bad credit. Prepayment penalties aside,
Peter also suggests that your lender may have built additional limitations into
your mortgage. If, indeed, you did have credit problems, your lender may have
thought it prudent to protect itself through other contractual elements. If
you think that may be the case, review your mortgage carefully or, for a particularly
thorough examination, hand it off to an experienced real estate lawyer. If you
have any additional concerns or comments, you may also want to contact the consumer
affairs department of your local district attorney's office. | 
