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Richard, Lawyer
Category: Real Estate Law
Satisfied Customers: 55304
Experience:  32 years of experience as lawyer in Texas. I'm also a Real Estate developer.
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I am reviewing a contract to purchase a new home. Under prepayment,

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I am reviewing a contract to purchase a new home. Under prepayment, that says that if I pay off my loan early, I will not be entitled to a refund of part of the finance charge. What does that mean exactly? It doesn't clarify itself anywhere else in the contract.
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good morning. If this in the contract to purchase the home, is the seller financing the property for you? If so, what are the terms of the financing? Are there upfront costs? On what basis in the loan being amortized? I apologize for so many questions, but I want to be able to provide you complete and accurate information.
Customer: replied 4 years ago.

No. It is a bank financed loan.It's a 30 year fixed mortgage rate. Upfront cost are my down payment plus settlement costs. I don't know what you mean by amortized.

Thanks for following up. This provision is in your contract to purchase? Or is it in the documents being provided by your lender? If the latter, are you buying down your interest rate?
Customer: replied 4 years ago.

It is in the document provided by the lender. No. I would like to make extra payments on the principle. I understand what this is. This is a standard form provision that is typically in lender documents. As long as you aren't paying any amounts to buy down your rate and as long as you specifically identify your extra payments as being designated specifically for principal reduction so that they don't get simply applied to any prepayment of interest, this provision will have no impact on you. Only if you had purchased the rate down (which is effectively prepayment of interest) or been deemed to have prepaid interest by not designating additional payments to be applied to principal would this provision have any impact on you. You have every right to make prepayments of principal without penalty under the following CA statute:

California Civil Code Section 2954.9

(a) (1) Except as otherwise provided by statute, where the
original principal obligation is a loan for residential property of
four units or less, the borrower under any note or evidence of
indebtedness secured by a deed of trust or mortgage or any other lien
on real property shall be entitled to prepay the whole or any part
of the balance due, together with accrued interest, at any time.

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