Understanding Prepayment Penalities

penaltyFor most of us, the idea of paying off our mortgage well in advance is elating. But before you make this big move, it’s important to understand prepayment penalties, and what they could mean for you.

Simply put, a prepayment penalty means you will have to pay the lender a percentage of the principal, or some other stated amount, if you decide to repay the loan early. While this may seem wild (being charged for making your payment early!?), it’s actually quite common.

Some mortgages have prepayment penalties written into them. However, the prepayment clause is usually in effect for only one to three years and may be waived for special circumstances. Lenders impose the penalty to recover any losses related to your early payment.

If you are in the market for a home loan, ask about prepayment penalties before signing on. If you are applying for a new loan, the penalty should be disclosed in the truth-in-lending statement. Read the fine print and weigh all your options.

If you already have a home loan, call your lender or dig through your paperwork to spot any prepayment penalty clauses you may have missed.

As a Member of the Top 5 in Real Estate Network®, I have a wealth of real estate and home ownership information that may be of help to you. Feel free to contact me any time to learn more about this important information, and be sure to forward this article on to any friends or family that may be interested as well.

Forecasting The Real Estate Market With Government Shutdown

Wow, where did September go?  It was a very interesting month – kids went back to school, football season started, the weather has changed, the housing market remained strong and the government shut down for the first time in 17 years.

Forecasting The Real Estate Market With Government Shutdown

It will be interesting to see how the stock market reacts to the government shutdown, what the impact will be on rates, the housing market and how long it lasts.  If it is a quick shut down, we will probably see little reaction in the stock market and as a result, rates and the housing market.  If it is a prolonged shutdown of a few weeks or more, the stock market will have a negative reaction, rates will rise as bond yields decrease and we could see a loss of momentum in the housing sector of the economy.  What will happen to government backed loans in process and how will it affect settlements?  None of these are helpful to our economy since the housing recovery leads the economic recovery as a whole.  At this time, it appears as if this could last longer than just a day or two so let’s get prepared for a rocky economic road the next few weeks.

Let’s talk about the real estate market in September.  We did see a pickup in sales over last year in Northern Virginia.  Inventory increased slightly which gave buyers more choices.  As inventory increased, distressed properties made up a lower percentage of this increase which is great for home owners.  New home sales continue their strong pace of sales.  Interest rates came back down as the government eased off their threat of reducing their purchasing of mortgage backed securities and we still see multiple contracts on properties in certain price points and locations.

All in all, September was a good month for Northern Virginia real estate.  We need this trend to continue, so let’s hope the shutdown gets resolved more quickly than it appears it will.

If you have any additional questions or concerns, please feel free to call me directly (703) 652-5777

Scott MacDonald

RE/MAX Gateway, LLC

The Market from ALL Angles

Another successful RE/MAX Gateway Real Estate Exchange


I was at a lunch with business leaders across the Washington Metropolitan Area and we discussed various challenges we were having within our businesses and what our opinions were on what was to happen going forward into 2010 – here is what we discussed:


First and foremost, everyone is blessed to be in DC – others around the country are bleak with no hope. 


  • People at Rosenthal Automotive are concerned about economy
    • November was a really bad month for car sales – feels like November in first two days of December


  • Mike Jacoby at Broad Street says the commercial real estate market is flat and will stay there for the next few years.  One bright spot is that the Route 28 corridor’s vacancy rate had dipped.


  • Johnson and Strachan, the insurance company is taking a hit because of the following areas:
    • Renewals / expiration vales are down – payrolls are down, valuations on companies are down, house values are down so their revenues as a result are down. 


  • UBT – a copier sales and service team say in their opinion the economy is flat/stable – not terrific just like their business but they expect slight growth anticipated in 2010


  • Roofers are on a roller coaster this year but will probably be down at year end – the market is a race to the bottom in pricing but they remain cautiously optimistic.  John Francis on NVRoofing believes it will be a long recovery over the next 5 years. 


  • Jeff Nay of Sandler Training say there is still a lot of business is out there – need better skills and better systems to eat others lunches today.  Get educated and trained and you will survive in today’s market – especially in D.C.


  • Derek Coburn of Washington Financial Group who specialize in wealth management – money is in Bonds – not Stocks right now they are not afraid the market will crash and that the market will come down.


  • RE/MAX Gateway spoke about the following topics:
    • Inventory is down
    • Buyers are there but $$ are down or flat
    • Tax Credit for Home Buyers was extended
    • MBS end in March
    • HVCC is keeping $$$ down
    • Foreclosures are hitting market 2nd Quarter of next year
    • FHA raising down payment requirements this year from 3% – 3.5% and perhaps to 5% down next year
    • Credit is tightening up
    • If we continue to lose jobs it’s important to keep in mind that every 6 job lose results on 1 foreclosure.


Next year will be an interesting year in residential real estate with the Government getting out of purchasing Mortgage Backed Securities, the Home Buyer Tax Credit ending, and a supposed flood of foreclosures coming on the market the second quarter next year and the impact that will have on housing prices.  Stay tuned!


We then introduced Keith Barrett of Champion Title & Settlements, Inc. to discuss the new regulations going into effect April 5, 2010.


General Short Sale Guidelines under HAFA




Eligibility for Home Affordable Modification Program (HAMP):

1. Property is borrower’s principal residence

2. First lien mortgage originated on or before Jan 1, 2009

3. Mortgage is delinquent or reasonably foreseeable

4. Unpaid principal balance less than 729, 750

5. Mortgage payment exceeds 31% of gross income


Not guaranteed but must be in place


In the event modification process above does not work out, every potentially eligible borrower must be considered for Home Affordable Foreclosure Alternative (HAFA)


The percentages of loan modifications that default are greater than successes where people remain in their homes – there is a huge opportunity here folks!!


General Information:


Effective date April 5, 2010


Servicers must execute participation agreement for non-GSE Mortgages prior to end of the year.  If already participating, must follow HAFA guidelines.


Servicer has 30 days to contact borrower regarding short sale or deed in lieu


Borrower then has 14 days to respond


Prohibits servicer from reducing commission as stated in listing agreement


Doesn’t protect settlement companies and their fees – it’s unfortunate.


Suspension of foreclosure while under consideration for short sale


Short Sale Agreement under HAFA:


Termination date of not less than 120 calendar days after agreement signed


Agreement is available on line


Release of liability for borrower for cancellation of default


Allowable transaction costs


Roles and responsibilities of servicer and borrower, upkeep of property, pay a portion of their monthly payment until closing.


Borrow must submit offer/request for short sale approval within 3 days of receipt. Servicer has 10 business days to approve/deny short sale from when contract and request for short sale approval submitted. At this time, we are not aware of any penalties given if there is no response by bank by the deadline.




$1500.00 for relocation expenses paid to borrower


$1000.00 paid to servicer


Investor paid $1000.00 for allowing up to $3000.00 to be paid to subordinate lien holder, which lien holder must forgive the debt and release liability


Again, there is opportunity here – don’t miss out!


We had discussed if the government had given everyone $100,000.00 vs. bailing out everyone would be in a better position today versus the situation we are in today with all of the debt the government is in.


Inventory levels continue to shrink:

5,074 Active resales in Northern Virginia

1.9 month supply of homes

1.9 month supply of rentals


Our market is strong for sellers with equity!  Get them on the market today.  Get it?  Got it?  Good!


Now, go sell something!

How to Expedite the Loan Modification Process

As a Member of the Top 5 in Real Estate Network®, I am frequently asked these
days for my advice on loan modification…specifically, how quickly new loan
terms can be arranged. Waiting to find out if your application for loan
modification has been accepted can be a nerve-wracking and frustrating
experience—especially if you’re still receiving late payment notices and
creditor calls. Here are some important insights into the loan modification
process from consumer advocate and author Ralph R. Roberts.

1. The loan modification
typically takes 30 to 90 days, depending mostly on your
lender. The loan modification timeline, however, is not set in stone. The more
complex your situation, the longer the process takes. Borrowers with a lot of
collateral issues can see their loans take longer than what has become the
typical 30- to 90-day timeframe.

2. A professional can
often reduce
the amount of time required by processing your
paperwork efficiently, presenting your application exactly the way the lender
wants it, and knowing from past experience what the lender is able and
typically willing to agree to. Find out how long the process is likely to take
and mark the dates on your calendar.

3. Refer all matters to
the professional
who is representing your loan modification.
Anything you say to the lender could confuse things or compromise your
representative’s ability to negotiate the best deal on your behalf.

4. Log all phone calls and
correspondence between you and your lender or representative. Keep track of
important dates. Consistent follow up is paramount to a successful

5. Explore other
If the lender denies your request for a loan
modification or presents an offer that you cannot accept, you will need a plan
B. Consult a real estate agent about listing your home for sale. Talk to a
mortgage broker or loan officer about refinancing. Speak with a bankruptcy
attorney to find out whether filing bankruptcy would be a better choice.

6. You might continue to
delinquency notices or late payment phone calls. Push
to have all default and foreclosure actions put on hold while your workout
attempts are underway.

The loan modification process can be long and trying, but doing your part to
keep the process on track by remaining informed can increase your chances of a
positive outcome and reduce stress. For more advice on loan modification,
please e-mail me—I can point you in the right
direction. Please also forward this important information to your social
network; it just might help someone you know.