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Prepayment Penalties in this Interest Rate Environment

Earlier this week, we had a client lock a non-recourse HUD loan at 3.15% for a 30 year term. We had another client ask us today for advice on refinancing a two year old loan and paying a ONE MILLION DOLLAR prepayment penalty. We did the math and this client stood to lower his payments by $25,000 per month and recoup his additional costs in 45 months. With rates at historic lows and the possibility of wrapping the prepayment penalty into the principal of the new loan, paying such a high prepayment penalty makes financial sense.

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