DEAR BOB: The loan papers for my recently refinanced home mortgage say there is no penalty for paying off the mortgage early. However, it says no part of the finance charge will be refunded. Does this mean I will save no money at all for paying off my mortgage early? – Laurie K.
DEAR LAURIE: Congratulations! You wisely obtained a mortgage with no prepayment penalty. That means if you pay off the current lender after winning the lotto or refinancing with another lender, you won’t incur any penalty for early repayment.
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Millions of homeowners elect to make extra mortgage payments each month to prepay their home loans earlier than the 15-, 20-, 25- or 30-year term. The result is huge interest savings due to early payoff.
Whether you prepay your mortgage gradually, such as an extra $100 per month toward principal reduction, or you prepay the entire amount, you won’t incur any penalty. Many mortgages, where allowed by state law, have prepayment penalties for early repayment. You are fortunate your mortgage does not have such a prepayment penalty.
WHAT TO EXPECT WHEN MAKING THE FINAL MORTGAGE PAYMENT
DEAR BOB: In May we will make the final payment on our 25-year home loan. It will be a big day for us because it has been a struggle to keep up a perfect payment record. What should we expect to receive from the lender (a big impersonal loan servicer who has been a pain over the years)? – Ben R.
DEAR BEN: Congratulations. It’s all right if you have a symbolic “mortgage burning party” to celebrate, but please don’t actually burn your mortgage papers because you might need them.
Depending on whether you have a mortgage or a deed of trust, the lender should record (or send to you for your recording) either a mortgage satisfaction or a deed of reconveyance. Lenders are notoriously slow doing this because they have no financial incentive to perform promptly.
After 30 days, if you haven’t received anything from the lender, phone the lender to inquire. If necessary, follow up with a written request.
It is extremely important to be sure your mortgage or deed of trust is cleared from your title so you won’t have any future problems when you want to sell the house (or possibly obtain a reverse mortgage to provide for retirement income).
The new Robert Bruss special report, “How the New Tax-Deferred Real Estate Exchange Rules Can Make You Very Wealthy,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at www.bobbruss.com.
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