Pre-Payment Penalties - Why Is This Not Often Discussed?

[Malcolm Gordon]

Hello BP,

I would like to touch on a subject which I have never come across in any of the books I've read nor often discussed in the BP forums; yet I believe its is a very real thing from my understanding and appears to often be overlooked when one considers to pay off a loan early, or refinance.  I am referring to pre-payment penalties and I am curious if this should be a valid consideration when obtaining a loan from a lender and also I am curious to hear the experiences of BP members in regards to this subject.  Why this is not a common topic of discussion when structuring a loan or re-financing? is it simply not understood by most people or is it insignificant? I am I missing something?

Thanks for you insight,

Malcolm G.

[Bill Gulley]

Originally posted by @Russell Brazil:

Ive recently seen one lender who does business in the DC metro area, including Maryland... who is essentially charging pre-payment penalties...but the penalties are coming from the title company that is owned by the same company. I am wondering if the way they have structured this is legal or not, and if not, how long it will continue for.

 LOL, that place is full of crooks and connivers !  First answer is no, all affiliations must be disclosed, funds from others figured into the origination and loan costs. My second answer, using my imagination, might be yes it could if a borrower is not obligated, but then I think they'd need to get around artificially inflating loan income from a bank affiliate, simply moving money from the left pocket to the right pocket. It depends too on the relationship between the bank and the title company, earnings shifted to the bank increase the stock price. Again, disclosure! If a borrower is never obligated to pay a fee, it's not really a loan payoff PPP, it becomes a commercial contract between affiliates. Assuming the borrower doesn't pay more to the title company, then you'd have a possible kickback issue. Since congress basically runs DC I'd think it would be difficult to attrack attention, but Maryland would be a different matter. :)