Do you have a loan that doesn't have a penalty if paid off early? Either short term or long term? The reason I ask is that [another mortgage company] has one they are promoting.
- A REALTOR®
Port Townsend, WA
Prepayment penalties are very, very rare these days. They're practically illegal. I can't even remember the last time I saw a loan with a prepayment penalty.*
If another company is promoting such a loan, they're not promoting anything unique or special. Fannie Mae, Freddie Mac, FHA, VA, and USDA loans all have no prepayment penalty. You could pay off the loan the day after it funds and nothing bad would happen.
Now the lender doesn't like it when you payoff early because they lose a lot of money! It costs thousands of dollars to originate a mortgage loan and if the lender doesn't get to sell that loan on the secondary market, they lose money. But it happens. And lenders just have to eat the loss.
There are some lenders that have payback clauses for their loan officers. If a loan is paid off within six months (usually), the loan officer has to pay back their commission. But that only affects the loan officer, not the borrower.
* The exception is home equity lines of credit. They usually have prepayment penalties if you close them within the first year to three years. To be clear, you're allowed to off the balance but you have to keep the account open. And they're pretty tame penalties. The most I've seen is $500.
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