When you are closing on a home loan, you are confronted with stacks of papers to sign. One of those is a document that sets out the rules about the loan itself and repayment. When you negotiate the loan, here are some things you really need to consider and ask about before you sign on the dotted line.
Pre-payment Penalty
Some loans have a provision that if you pay off your loan early, you are subject to paying an amount. This is to compensate the lender for the interest payments you will not be making because you have paid them back the entire principal before the term of the mortgage expires. If you have a variable loan, this is usually three months of interest charges. If you have a fixed loan, it depends on how the lender calculates the payment. If you got your loan through a bank, expect that the pre-payment penalty will be higher than that charged by another type of lenders.
Portable
This gives you the option to transfer your mortgage from one property to another. This is a favorable choice if you move around a lot, like job transfers or military families. Obviously, it makes the transition easier. This can sometimes avoid penalties.
Prepayment Privilege
This item will allow you to pay off a part or all of your mortgage early without the lender assessing a penalty. It will depend upon how the mortgage is written whether or not you have this option. This can be a good thing for the new homeowner. If you get annual bonus payments from your employer or expect some type of windfall payment, you can apply this to the principal of the loan and get it paid off sooner and save some interest money. Another option is if you have your mortgage deducted from your pay or bank account having the payment split and deducted every two weeks instead of monthly. This adds an entire extra payment a year that will help reduce your amount of interest paid over time.
Assumable
This is when you can transfer your mortgage to the person who is going to buy the house from you. This can be beneficial to the new buyer if you have better terms, especially interest than are currently being offered. This is sometimes used as a selling point when you put your house on the market.
There are many terms and conditions associated with a home mortgage. It is important that you understand the terms when they are being mentioned at closing or during the loan application process. Some terms are favorable to you and others favorable to the lender. Advanced research makes you a better buyer.