6 steps to a lower prepayment penalty

3. Do the math. In some cases, the prepayment penalty is well worth the chance to move to a less risky, lower-interest loan. For example, if you pay $4,000 now but save $50,000 over 15 years by refinancing, it might be worth it. Similarly, the penalty might be justified just to get out of a balloon loan.

Still, in other cases, you may find that you need to lower the penalty before making your next move. Compare the options to determine your next move. A $4,000 prepayment penalty may be less palatable if you plan to move in a year or two, before you can reap savings from refinancing a loan. Or, you may simply not have the cash.

4. Get on the phone. To start negotiating, you'll need to get the right person on the phone, and that probably isn't the first person to pick up when you call the bank.

"The first point of contact should be the loan officer," says Davis. "But if you don't have any luck here, escalate it to a manager. They generally have more pull and decision-making power."

When you're on the phone, ask what they can do for you. Though it's unlikely that they'll dismiss the penalty outright, you may get it reduced. For example, if you've been paying the mortgage for 22 months and a lower prepayment penalty kicks in at two years, they may trim the penalty even though you haven't reached the two-year threshold.

5. Be polite. Keep in mind that no matter how awful your prepayment penalty is, you've signed a contract and the banks have the upper hand. Getting angry with a loan officer isn't going to help your cause. "It never hurts to ask," says Glink. "But ask nicely."

6. Get it in writing. Make sure that you're documenting everything: the names and titles of the people you're talking to, the dates you called and any offer you've received. Ask to get the deal in writing. An offer over the phone is only as good as the paper it's written on.

With foreclosures high and banks eager to improve profits, Glink says it's more difficult than ever to convince bankers to waive prepayment penalties. Still, a potential reduction by thousands of dollars makes your investment of time useful.

"If (paying off a loan or refinancing) is something you're thinking about, negotiating the prepayment penalty is definitely worth considering," Glink says.

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