What is a Pre-Payment Penalty?

When signing up for a loan, you need to be wary of pre-payment penalties from some lenders. By offering a somewhat lower interest rate, borrowers will end up with a mortgage pre-payment penalty. This is a penalty for paying off your loan earlier. Though borrowers might save monthly with a lower rate, pre-payment penalties can end up costing you thousands of dollars.

Pre-payment penalties are used to protect loans long enough for lenders to recover some of the costs they gain from the original loan. These penalties also discourage refinancing your loan. Say your rates should decrease, lenders are promised a higher amount of the money that was lent. You won’t be able to refinance to the lower rate. You’ll continue to pay your current rate, while, in most cases, the lender gets the extra money, unless you decide to pay the fee.

At Sandton Partners LLC, we don’t believe in pre-payment policies! If you are interested in a rehab or new construction loan, but not in pre-payment policies, contact us today at 508-265-2720 or by filling out an application loan.

Sandton Partners
PO Box 3192 AndoverMA01810 USA 
 • 508-265-2720

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