financing secrets of a millionaire real estate investor.pdf

4/Working with Lenders 49
Prepayment Penalties
Lenders are smart investors, too. If interest rates
are falling, lenders don’t want you to pay off a
higher interest rate loan. They discourage you from
refinancing by adding a prepayment penalty (PPP)
clause to your loan. The PPP provision states that if
you pay the loan in full within a certain time period
(usually within one year to three years), you
must pay a penalty. The common penalty ranges
from 1 percent to 6 percent of the original loan balance.
Make sure that your loan does not have a PPP
if you plan on refinancing or selling the property
in the next few years.
Length of Time in Business
Because the mortgage brokering business is not highly regulated
in most states, there are a lot of fly-by-night operations. Bad news travels
faster than good news in business, so bad mortgage brokers don’t
last too long. Look for a company that has been in business for a few
years. Check out the company’s history with your local better business
bureau. If mortgage brokers are licensed with your state, check
to see if any complaints or investigations were made against them.
Also, ask for referrals from other investors and real estate agents.
Many mortgage brokers will bait you with “too good to be true” loan
programs that most investors won’t qualify for. Once they have you
hooked, it may be too late to switch brokers, and now you are forced
to take whatever loan they can find for you. It’s not that all of these
mortgage brokers are crooks; it’s often the case that the broker is just
not knowledgeable about the particular loan programs they offer. In
many cases, the particular lender they were dealing with was the culprit.
Many wholesale lenders offer programs to mortgage brokers,