Prepayment chicanery

Ready to save potentially thousands of dollars when you buy your next house?  Just say this to your lender:  "I don't want a prepayment penalty."  That's it.

A prepayment penalty is simply a fine for paying your loan off early.  If you want to sell your home or even refinance it, and you have a prepayment penalty clause in your agreement, you will pay a 'premium' to do it.  Lenders who include these clauses like them because they discourage the borrower from breaking the relationship with the lender, thereby keeping their customer.

Sometimes, a lender will offer a lower interest rate to entice the borrower to include the penalty.  As a borrower, you should ask yourself if saving an extra $35 per month is worth possibly thousands in fees down the road.  Personally, I have never signed a loan agreement that included a prepayment penalty.  I recommend you think twice before you sign one.