Watch Out for Mortgage Penalties

With mortgage rates at near all time lows, it is very important in these times to pay attention to early payout penalties before a seller puts their home on the market. Lately, we have been finding that newer mortgages have some things in the fine print that need to be watched.

It is common knowledge that lenders charge an early payout fee (penalty) when the mortgage is paid out prior to maturity. The two most common penalties are:
- a three month interest penalty
- a differential rate for the balance of the term between the higher rate of the paid out mortgage and the current rate
- almost always the penalty is the higher of the two.

With the present low rates, the penalty could be much higher. We heard of one recently where the penalty to pay out was $ 27,000! Today, five or ten thousand is not uncommon.

It is very important to do this research before a property is listed. This falls into the list of things that, if there is a surprise, it is a lot better to find out earlier than later.