Prepayment Penalty Clause Example

What Are Real Estate Contract Penalty Clauses? Penalty clauses in a real estate contract usually impose penalties on the mortgage lender or borrower if they violate certain terms. In most cases they are imposed by the mortgage lender upon the borrower, though this may change depending on the contract terms.

prepayment clause. A loan provision allowing the borrower to pay the loan in full before the maturity date without penalty, or to make principal reductions faster than originally envisioned by the parties. Consumer mortgages all have prepayment clauses. large, commercial loans typically prohibit prepayment.

If the prepayment penalty is lower than your interest savings, taking the prepayment penalty is a good idea. For example, using the previous example, your interest savings by paying $200 more per month would be $86,000-$62,000, or $24,000.

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A hard prepayment penalty, on the other hand, sticks the borrower with a penalty if they sell their home OR refinance their mortgage. Obviously, this is the tougher of the two, and basically gives a borrower no option of jumping ship if they need to sell their home quickly after obtaining a mortgage.

Historically, liquidated-damages provisions were disfavored because courts considered them penalty clauses. As an example, in Ridgley v. Topa Thrift & Loan Association, the provision at issue.

. for the prepayment penalty if you plan to repay the loan before the term ends. This is all the more important if the loan is of a long tenure and you are looking at prepayment. Check clauses with.

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How to Calculate a Prepayment Penalty – wikiHow – If the prepayment penalty is lower than your interest savings, taking the prepayment penalty is a good idea. For example, using the previous example, your interest savings by paying $200 more per month would be $86,000-$62,000, or $24,000.

By using the prepayment penalty and substitution and collateral clauses, you are. For example, if you have a three year Note secured by a piece of real estate.

A prepayment penalty clause is a provision in loan agreements under which the lender imposes a penalty when a borrower retires a loan before its scheduled pay off date. The purpose of these clauses is to compensate lenders for not obtaining interest income they anticipated, and for the possibility that the loan amount will have to be reinvested.

Yield Maintenance: A prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity.