close out a loan in the first few years to fork over some extra cash — have
long been common on the so-called subprime mortgages issued to borrowers with
blemished credit records…. Most of my buyers are choosing to use ARMS rather
than fixed rate mortgages.
…But
prepayment penalties can sting, particularly when mortgage rates are moving up
or down at a rapid clip. During the refinancing boom, prepayment clauses made
it difficult for some borrowers to refinance and take advantage of lower rates.
Now that rates are moving upward, prepayment penalties can mean higher costs for
borrowers who want to pull out extra cash or refinance to protect against future
rate increases.
should ask this question
before
they get to the closing table. Link here
(good for 7
days)
Prepayment penalties —
requiring borrowers who close out a loan in the first few years to fork over
some extra cash — have long been common on the so-called subprime mortgages
issued to borrowers with blemished credit records. But they are increasingly
showing up on adjustable-rate mortgages, or ARMs …
Most of my buyers are choosing to use ARMS
rather than fixed rate
mortgages.
…
But
prepayment penalties can sting, particularly when mortgage rates are moving up
or down at a rapid clip. During the refinancing boom, prepayment clauses made it
difficult for some borrowers to refinance and take advantage of lower rates. Now
that rates are moving upward, prepayment penalties can mean higher costs for
borrowers who want to pull out extra cash or refinance to protect against future
rate increases.
Things will get
interesting if rates increase and homeowners have not planned for these rate
increases.