Home Mortgage Refinancing Guide

If you are in the process of refinancing your mortgage it is important to ensure your existing mortgage does not have a penalty for early repayment. Mortgage lenders include prepayment penalties in their loan contracts to discourage homeowners from refinancing their loans. If you are unsure of whether or not your existing loan includes a prepayment penalty check your loan contract or call your lender. If your existing loan includes a prepayment penalty, find out when the penalty expires and how much you will have to pay before it expires.

If you’re in the process of shopping for a new mortgage and have good credit, there is no reason to accept a mortgage that includes this prepayment penalty. Always ask your loan representative if the mortgage includes the penalty as many unscrupulous representatives will try and slip one past you. Some representatives receive a bonus when you accept this penalty; always ask if your mortgage includes the penalty, if the answer is yes then ask why the lender feels they need to include one.

If you have poor credit there may be no way around a mortgage that includes a prepayment penalty. You might be able to negotiate with your lender to pay a point or a quarter percent higher mortgage rate in exchange for dropping the prepayment penalty; however, most bad credit mortgage loans include this penalty. If you are accepting a mortgage that includes a prepayment penalty because of your credit, you need to have a penalty that expires before you plan on refinancing the loan.

The goal for most homeowners with bad credit mortgages is to refinance after two years of making on-time payments. After 24 months you have usually built up sufficient credit to qualify for a traditional mortgage with a competitive mortgage rate. When you’re eligible for a conventional mortgage you won’t want the added expense of a prepayment penalty preventing your from a better mortgage loan. You can learn more about your mortgage refinancing options with our free, six-part video tutorial.