My mortgage includes a statement that a penalty may be imposed for early payoff. What does that mean?
Lenders will sometimes impose a penalty for early payoff or prepayment of a mortgage loan. Others will penalize you only if your payment exceeds a certain amount or occurs within a certain time period. Certain loans (i.e., fixed rate mortgages) are more likely to carry a prepayment penalty than others (i.e., adjustable rate mortgages). Federal credit union, Federal Housing Administration (FHA), and Veterans Administration (VA) mortgage loans can all be prepaid without penalty. Typically, you prepay a mortgage loan (that is, you send in more money than required) to reduce the amount of interest that is paid over the life of the loan, resulting in thousands of dollars in savings. To prepay your mortgage loan, you should read your mortgage contract or talk to your lender to clarify the terms of your mortgage loan and determine whether or not you will suffer a prepayment penalty. If your mortgage lender will not remove the prepayment penalty, you may be better off investing the extra sum elsewhere.It is important to note that if you do prepay your mortgage loan, it does not change your monthly obligation to your lender. Regardless of how much you prepay, you will be in default if you fail to make your minimum monthly payments.