Question:

I discovered a prepayment penalty clause on my mortgage agreement – what to do?

Answer:

Many borrowers discover a prepayment penalty clause only when they decide to refinance. There is little one could do. When you were provided with a Truth in Lending (TIL) statement, this was the time to find out if the loan is offered with a prepayment penalty clause. Perhaps you did not notice this when you were given the TIL to sign, or simply the wording of the prepayment penalty option did not ring a bell that there might be an issue here.

Mortgage loan prepayment penalty clauses may be a surprise.

If you are going to refinance now and you discover you have a prepayment penalty option, read it carefully. Perhaps, it no longer applies to you.

However, that will seldom be the case. It is usually borrowers who discover that their monthly payments are going up sooner than expected wish to refinance soon after they take the mortgage.

If you really decided to take a chance on low market rates, try refinancing with the same lender. They may be willing to reduce some of the charges and/or penalty amounts if they keep you as a customer. However, don't count on that. Lenders don't usually give up fees and charges borrowers agreed to pay.

The TIL, as well, is not explicit enough about prepayment penalties and fees. Make sure, before you agree to a mortgage, to talk its terms over with an attorney to make sure what exactly you are agreeing to.

Recommended helpful present and future homeowners links:
Why: Refinance to a fixed rate loan while mortgage rates are still low.
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Common misspellings: mortage and morgage