Posted by BrendaKhan/FL on 2/4/05 7:31am
Msg #19404

PrePayment Penalty

What do you say to the borrowers when they ask what is a prepayment penalty mean?

I have always described it as it is written in black ink on the paper,
do not pay off more than 20% of the principal balance for the next (1,2,3,4 or 5 years or as written) or you will be charged this (6 months interest or 5% of principal, which ever may be written)

I am almost always asked does this include refinanacing?
Does this include selling my house?

I thought the answer was yes but yesterday a loan officer told me NO, of coarse that was followed by him telling me that I should just do my job and just be a notary and not answer the borrowers questions or describe anything to them, just get them to sign it. This was an Ameriquest loan officer, nothing else needs to be said.

How do you answer these questions? BK/FL

Reply by PAW_Fl on 2/4/05 8:15am
Msg #19407

Show them the section or addendum to the note that covers the prepayment penalty. DO NOT TRY TO EXPLAIN IT unless you are 100% certain how that particular lender's loan works. I have had many loans where the penalty is a 5 year declining percentage without the option of refinance or sale. On the other hand, I've had some with only 2 years PPP and a "sale" option if the mortgage is satisfied through a bona fide non-government sale.

If you don't know, don't guess. Have the borrowers call their broker/loan officer to discuss it in detail. Remind them of their RTC so they can do it in the next day or two, not tying up time at the table.

Reply by Shane_IN on 2/4/05 8:17am
Msg #19408

Yes the prepayment penalty includes refinancing. AMC LO's tell their borrowers that if they refinance with Ameriquest after 2 years (when the 2 year fixed rate on the 2/28 is up), that AMC will waive that prepayment penalty to keep their business............ This isn't always true, and there is nothing in writing to substantiate it. Sometimes it happens, sometimes it doesn't.

Reply by sue on 2/4/05 8:23am
Msg #19410

I'm like Paul, I point to the paragraph or rider and tell them 'read this part right here'. Most times they ask nothing further although they're still confused. I NEVER try to interpret it because they are all different and as Shane said, many times if the LO tells them something they believe it, whether it's written in there or not.

Reply by Stephanie/CA on 2/4/05 11:27am
Msg #19420

I NEVER explain ANYTHING to the borrowers; as PAW indicated show the borrowers the section or page which may answer their question, or have them pose the question to their lender

I feel it can be a liability to explain anything to the borrowers; if they misunderstand and tell ththeir lender that the Notary said..."......
I don't want to be put in that position, so I let the borrowers read the pages relating to a question they ask me and they can interpret it in their own way, calling the lender, if necessary.

Reply by Joan-OH on 2/4/05 12:59pm
Msg #19426

I agree with everyone else. Stay away from the prepayment penalty. Some of them are so confusing, no one can figure them out and I'm sure not going to try!

The furthest I go is to point out the first line in the 2nd paragraph in the Borrower's right to prepay clause where it says ""I may make a full Prepayment or partial Prepayment without paying a Prepayment charge." If there is a prepayment addemdum, I pull it out at that time and have the borrowers read it. If it says there is a penalty, I point to the paragraph and say, here is the clause about your prepayment penalty, please read it.

Joan-OH