I’m trying to get out of paying a prepayment penalty on a 3 yr. ARM mortgage. The interest rate has jumped to 8.75%. I read that in Illinois prepayment penalties are prohibited when the greater of the interest rate/fully indexed rate or APR exceeds 8%. I have 6 months left with this mortgage. The prepayment penalty is 6 months interest. I will refinance only if I can legally be rid of the penalty. Is anyone familiar with this law & how it works? I really would like your input.
Here is the problem. They may have been prohibited SINCE you originated the mortgage, but that doesn’t get you out of your original obligation.
You need to wait the 6 months. I guarantee no bank closed on you loan with an illegal PPP, because the ENTIRE mortgage would be illegal and void and that is a mistake borrower’s aren’t lucky enough to have a bank make.
Also, keep in mind that the greater interest rate/fully indexed rate is ALWAYS above 8% (in fact, it’s closer to 15% at it’s peak) if you have an ARM rate that has aggressive adjustment conditions…which you should have understood before you signed.
The 8% you are referring to DOES NOT include the interest rate on the LOAN. That refers to costs of financing cannot exceed 8%, which is an entirely different calculation. So 8.75% sounds correct.
Keep the loan for 6 months and then refinance, and MAKE SURE that the payoff that is issued when you do, does not mention a payoff…don’t let some new bank go by the date where the PPP falls off.
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