Should I agree to have a prepayment penalty included into my contract?
If your credit score is not very good, I am afraid, you don’t have very much of a choice here. You are forced to do whatever your lender tells you to in order to get the loan. However, try as hard as you can to avoid the hard penalty . Borrowers with a good credit, though, can try to profit from letting a prepayment penalty into their contract. The lender must agree to a lower rate - about one eighth to three eighths of a point below the market rate. It is strongly recommended for a borrower to avoid the hard version of the penalty at all times! However, the profit may turn out quite doubtful if the rates drop within the penalty period but the penalty will make refinancing too costly. It is a sort of gamble. Maybe buying points is a better option for borrowers with a good credit score.
