Not sure if it is Federal Law,but pre-payment penalties with banks/savgs and loans are illegal. You may want to talk with your local bar association…most have leads to lawyers who will give you freebie tips on questions like this.
Wrapping into one loan makes sense and should be possible at a much lower rate. In chicago area,it’s possible to get investor loans around 8-7/8% to 9%.
I have just purchased a rehab home no money down. Due to this, the loan was split into two. The first mortgage is for $33,000 at 10%. The second is for $11,000 at 12.5%. There is a prepayment penalty on both loans for two years. Therefore if I sell within this time, I would be penalized. The penalty equals 6 months of the interest left on the principal of each loan. For the first it would be $1650.00, and for the second $687.49 totalling a whopping $2337.49 if I sell within two years.
My mortgage company says they can restructure this into 1 loan at a lower interest rate. Would that be wise, or would these penalties be tacked on to a new loan? Is there anyway around these “penalties”?