Question:

How to use a mortgage prepayment option?

Answer:

The mortgage prepayment option (with prepayment penalty provisions) can be of great use to prime borrowers who have an idea for how long they are going to stay in their home. The mortgage loan prepayment penalties usually don't hold for more than 3 years.

If you are certain you will be staying in your home for 3 to 5 years you could really think of accepting a loan prepayment penalty option that holds for the first three years of your mortgage. This will reduce your mortgage interest rate. However, if you are thinking of it, and you see a pre payment option inserted in the mortgage loan agreement without the lender mentioning that in advance, you should ask the lender about it.

Lenders get benefits when having prepayment penalty option on the agreement.

Mortgages with prepayment penalty clause pose less risk to investors and lenders are able to sell prime loans with prepayment penalty higher. However, if you are not offered rate reduction in exchange for accepting a pre-payment option, make sure you ask for it.

If you know you will be staying on your property for, say, two years only, then negotiate a prepayment penalty that holds no longer than the anticipated period of stay.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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