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As I understand it, the logic is the bank is expecting to make a good deal of money over the life of the loan in interest. Prepaying reduces that profit, so the
by thedanbob 6y ago
As I understand it, the logic is the bank is expecting to make a good deal of money over the life of the loan in interest. Prepaying reduces that profit, so they penalize you to discourage that behavior. Note that not all mortgages have that penalty (mine doesn't).
- VLM 6y agoAs with most financial things it depends on location and time and specific conditions. Generally, its been illegal since 2014 nationwide to have a prepay penalty. In my state its been illegal as long as I've had a mortgage. In some weird but possible conditions its possible post-2014 to have a prepayment fee at the national level for a normal residential mortgage. You'll see all kinds of random dates at the national level. From what I understand the 2010 Dodd-Frank act was the enabling legislation, the new rules came out in 2013, and went into effect in early 2014, but its all the same issue.
- bumby 6y agoIt depends on the conditions of the loan as well. I don’t believe any VA-backed loan can be assessed pre-payment penalties
- jmalicki 6y agoWhile it may not be an explicit penalty at time of prepayment, the risk of losing revenue due to prepayment/refinancing if interest rates drop is definitely modeled priced into the terms of the loan, just as the risk of you going bankrupt and not being able to pay is.