Don't Be Surpirised by Payout Penalties
If you are locked into a closed mortgage and you are Selling (or trying to negotiate a lower rate with another lender) you will be penalized. This penalty will be added to the outstanding balance of your mortgage at the lawyers when you sell. Sellers are sometimes surprised by this cost.
Penalties are usually calculated in the following way:
A) Three months interest on your current mortgage - a $300,000 mortgage would have a penalty of approx. $4,500. I used 6% as an interest rate on a present mortgage. $300,000 X .06 = $18,000 per year or $1,500 per month.
B) An interest rate differential which is the difference of cost that the lender will incur if they out money at todays rate. This only happens if rates are lower than they were when you locked in your mortgage. This example would be if a client's current mortgage is for $300,000 at a rate of 8%. He/She is selling the home with 36 mon ths left to pay at 8%. Todays hypothetical Rate is 6%. The penalty could be as high as $18,000
$300,000 X .02=$6,000 per Year X 3 Years left on contract.
Payout penalties can really vary, so you have to call your lender to get the payout penalty to be sure. Most lenders can charge an IRD (Interest Rate Differential) -- see your mortgage contract for payout penalty options, "B" lenders sometimes have higher penalties up to 6 months payments.
W.A. (Bill) Jones
Century 21, Castlewood Agencies
(403) 701-1739 ( 9:00 am to 9:00 pm )
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