One of the most important things for a homeowner is learning how to get out of a mortgage without penalty. Understanding the information behind mortgages, late payments, loans, and the basics of selling a house can help you find out how to save money and get the most in return.
But one question remains — how is this possible? Many homeowners struggle with figuring out how to lower their mortgage payments and avoid hefty fees. Feeling stuck? We can help you by teaching you the basics of home equity, real estate, lenders, loans, and selling a house fast!
Need help? We buy homes in Memphis has to offer so we can help you avoid the stress that comes with selling a home!
Memphis Mortgage Laws
Every state has different mortgage laws — and Tennessee is no different. Understanding Memphis mortgage laws can help homeowners avoid hefty loan fees, foreclosure threats, and borrowing taxes.
The basic laws homeowners must keep in mind include the federal laws which govern every state in the United States. Before the foreclosure issue in 2010, federal laws were relatively lax and lenient regarding lending and borrowing. However, after the housing crisis, federal and state laws have turned to more heavily regulate and control the borrowing, servicing, and foreclosure steps.
Federal mortgage servicing laws apply to all states in the US. In these laws, it states the servicer must contact the borrower (you) to address mitigation options, loan changes, and modifications. Federal servicing laws help increase communication between borrowers and lenders and can help those who are bankrupt avoid overpaying.
Furthermore, federal laws state the servicer can’t start foreclosure on a home until a borrower is over four months past the payment period. This period of 120 days provides homeowners with enough time to mitigate the expenses and contact the servicer.
In addition, Tennessee law does not allow a homeowner to reinstate a loan right before a sale.
The only exception to this law is for high-cost loans. However, homeowners can still take advantage of deeds of trust that help homeowners prevent defaulting on loans. One of the most critical state laws enacted in the state of Tennessee is the Tennessee Home Loan Protection Act of 2006, which helps avoid predatory lending and defines the term “high-cost” loan.
Lastly, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act regulates mortgages, creditors, and servicers during the home sale process. This spurred the creation of the rules enforced by the Consumer Financial Protection Bureau, which prohibits prepayment penalties for the majority of mortgages.
Are you having trouble finding Tennessee and federal laws? Use the Library of Congress to fund regulations and statutes. Homeowners can also use LexisNexis to see the Tennessee Codes, which regulate home sales and foreclosure information.
Prepayment Penalties in Memphis
First thing’s first – what is a prepayment penalty? A prepayment penalty is a charge on a borrower if the borrower pays fees during the early part of the life of the loan. If a person wants to pay off their loan or refinance their home during the first months or years of the loan term, this qualifies for a prepayment penalty due to paying off the mortgage early.
But do you qualify for a prepayment penalty? If the following criteria are met, a person will have to pay the penalty:
- The APR does not increase after a person takes out a personal finance loan
- The loan is a qualified mortgage loan (it is more stable and avoids interest payments)
- The loan is not a higher-priced loan
However, certain individuals can avoid prepayment penalties in Memphis. If a person bought a mortgage before 2014, they do not qualify for prepayment penalties. Individuals who are unsure if they qualify for a prepayment penalty should look at their billing information or closing costs.
Lastly, there are restrictions on prepayment penalties in Memphis that can affect if a person qualifies to pay this fee. A prepayment penalty is valid for only three years after the contractual obligation of the loan. Therefore, any time after three years is not subject to a fine. Any time after this 3-year period is suitable for homeowners to think about refinancing.
Mortgage Penalties and Fees
Mortgage penalties and fees typically apply to a person or lender if they pay off their mortgage loan too early. The penalty fee is used to help encourage borrowers to pay the loan off slower, leading the lenders to earn more money in interest over time.
So why do lenders charge mortgage penalties and fees? One of the main reasons why a lender wants a slower repayment process is because interest can accrue over time. Lenders can avoid the “risky” period immediately after the contract is signed and make more of a profit in the long-term investment.
How much can borrowers expect to pay? If you are considering getting a loan for your mortgage, it can be helpful to calculate how much you will pay depending on the mortgage rates. Most homeowners have to pay the remaining loan balance, the interest rates, a fixed amount set in the contract, and a sliding scale depending on the length of the mortgage.
These numbers typically range depending on the lender, credit score, and contract. For example, the remaining loan balance is typically between 1-3%, the fixed amount is between $2,000 and $5,000, and the sliding scale usually is between 1-2% of the outstanding balance.
Ways to Get Out of a Mortgage Without a Penalty in Memphis
Homeowners and borrowers can learn how to get out of a mortgage without penalty by understanding what will cause the loan repayment fee —- and how to avoid it!
The loan repayment and prepayment fee depends on several factors, such as the type of prepayment. A “soft” prepayment penalty applies to refinancing during the beginning years of the loan. A “hard” prepayment penalty is only included if a person sells the home.
A borrower can avoid a mortgage without penalties by avoiding repaying during the first years of borrowing. If a person avoids refinancing until after three years after they signed the contractual obligation, this can prevent fees and high costs.
The Strategic Default Way
Borrowers should also read through their contracts to see what can influence the prepayment fees. Instead of just accepting your fate of having to pay the prepayment penalty, the best way to avoid this issue altogether is to choose a different lender. Just because someone seems like the best choice, it might not be the case.
The simplest way to avoid the penalty is to find a mortgage lender who won’t charge a penalty. However, if you only have a few options, there are a few things to consider:
- Choose a soft prepayment penalty to avoid paying a lump sum
- Choose a prepayment penalty that expires at the end of the mortgage term
- Use your prepayment privileges to reduce the amount of interest
- Negotiate with homebuyers looking for a new home
- Use a mortgage calculator to determine the loan amount that the penalty applies to
- Make mortgage payments frequently (monthly mortgage payment)
- Choose an open mortgage depending on the interest rate (lower interest rates are better for a mortgage contract)
Walking Away from Your Mortgage
The second option to avoid prepayment penalties is to get away from your current mortgage altogether. Instead of just choosing an existing mortgage and riding it out and losing money through additional payments, it can be time to get a new mortgage altogether.
Consider a Short Sale
A third option of how you can avoid prepayment penalties is to consider a short sale for your home. In Tennessee, you can avoid pre-foreclosure and foreclosure by choosing a short sale and avoiding late charges, inspection fees, and a breach letter. During this preclosure period, home sellers must pay off loans within 10-15 days to avoid a late fee.
Instead of waiting for fees to wrack up over time, homeowners can choose a short sale to deal with everything right away during the sale process. Consider selling a house before paying off mortgage fees to avoid prepayment penalties!
Consider Renting Your House Out
The last way that homeowners can avoid a prepayment penalty is to rent their house out during the sale process. Instead of letting your house sit idle and charging high fees, you can rent your house out in the meantime to make a little extra cash.
Especially in today’s world, where tons of people are traveling, remote working, and taking vacations after the Covid-19 pandemic, renting your house out to travelers, businessmen, families, and solo freelancers is a great way to keep a steady income without going into debt during the sale process.
Instead of accepting prepayment penalties with the sale of your house, look for quotes from various sources to see how you can get the best deal and avoid penalties. Not sure who to use? Buy my house in Tennessee and I can help you avoid the stresses that come with borrowing money and selling your house!
Sometimes, selling a house can be a little harder than just putting it on the market. Use these creative ways to sell a house to avoid prepayment penalties, foreclosures, and extra mortgage payments! A Fair Cash Deal can help you get the best mortgage for your current financial situation.