Private mortgage prepayment options can range from fully open to prepayment with a penalty and a variety of options in between.
For the most part, private mortgages are for a period of one year.
And the most common form of prepayment option would have a three months interest penalty attached to any prepaid amount.
But there are many variations to the prepayment conditions a private lender is prepared to accept.
At the one extreme, the mortgage can be completely closed with no ability to prepay unless the property is to be sold.
At the other end of the spectrum, even though the private mortgage will likely have a fixed interest rate for a term, the mortgage is completely open for prepayment at any time without penalty.
In the middle are a number of options that are in many cases designed to meet the needs of the borrower who is expecting to be able to repay the mortgage before the term.
One example of this would be a prepayment option that would incur a 3 month interest penalty if the prepayment occurred within 6 months of the start date of the interest term, but open with no prepayment penalty after 6 months.
There are all sorts of other examples where the lender will create a prepayment option that works for both sides and may be unique to a specific situation at times.
And because private lenders are many times individuals who make their own lending/funding rules, the options for how prepayment can be structured are truly limitless across all private mortgage lenders.
So the key point here is that if you have certain prepayment requirements in mind, you may be able to negotiate them into your mortgage contract with the private lender you would like to work with.
Regardless of any specific prepayment requirements you may or may not have, its always a good idea to be clear on what the prepayment penalty will be and how its specifically referred to in the mortgage agreement.
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