Caught a hidden prepayment penalty on a $180k commercial mortgage

I refinanced a rental property loan in Cleveland last year and thought I had a pretty standard deal. It wasn't until I tried to pay off an extra $15k six months later that the bank hit me with a 3% fee. Turns out there was a prepayment penalty clause buried on page 8 of the loan docs I skimmed over. Anybody else get burned by a hidden clause like this and have tips for spotting them faster?

3 comments

3 Comments

eric72324d ago

Man that's brutal, I got hit with something similar on a small multi-family loan in Philly a couple years back. It was a 2% penalty if I paid more than 20% of the balance in the first three years, and it was in a section labeled something boring like "borrower obligations and rights" on page like 11. Now I always flip straight to the payment terms and look for the word "prepay" or "penalty" before I even finish the first page of anything. Also started asking the lender point blank in writing if there's any prepayment penalty before I sign, and making them say yes or no.

eric72324d ago

Yeah I started reading the fine print after a landlord tried to sneak in a fee for using a credit card.

lewis.troy24d ago

Yeah I started doing that too after getting burned on a car loan once. Now I just pull out a highlighter and mark any section that says "prepayment" or "penalty" before I sign anything. Also started taking a picture of that page with my phone so I have a record. Lenders will hide that stuff in the middle of a paragraph that's like 5 pages deep. I tell them straight up "if you try to hit me with a prepayment penalty I'll refi with someone else day one." Usually they back off if they want the deal bad enough.