Question: We had bad credit and could only purchase our
home in Glendale two years ago with a 9.5% mortgage loan. We have
better credit now, and we should be able to qualify for refinancing
at standard interest rates. We learned, however, that we will
have to pay a prepayment penalty of $9,000 if we pay off our old
9.5% mortgage loan and refinance now. We are shocked. Are prepayment
penalties legal?
Answer: If the proper disclosures were made to you at
the time of the 9.5% mortgage loan, a prepayment penalty is enforceable.
Most prepayment penalties, however, only apply for a short period
of time, e.g., three years, so you may only have to delay your
refinancing to avoid the $9,000 prepayment penalty.
