OfflineIf I take out a say...$40,000 30-year loan to invest in a property, can I pay it off at once when I sell the property for a profit?
For example: I found a home in foreclosure for about $34,000. I'll figure about $6,000 to fix it up. Which totals $40,000. Now if I fix and flip it for $80,000, with the $80,000 I just made, can I just pay off that loan all at once? When the bank gives you 30 years to pay it off, you can pay all of it off at anytime right?
Sorry if this question sounds novice. But I'm only 18, and real estate is new to me.
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Welcome!
When you go to get the loan, ask if there is a pre-pay penalty. If there is you CAN pay it off early but the bank will charge you a penalty fee. If not, you can pay it off after the sale.
Hope this helps!
Dawn
Life's a Dance you learn as you go...GET HAPPY FEET!
"Most of the important things in the world have been accomplished by people who have kept on trying when there seemed no hope at all." ~Dale Carnegie
When you are getting it financed you can request a loan with no pre-payment penalty, just the the loan officer to structure the loan with no pre-payment penalty it may cost a little more but if your are doing it for short term it will not affect you much.
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That is an excellent question and imperative to ask whenever you get a loan for short term or even long term financing for that matter. Most all 30 Year fixed loans have no pre-payment penalty. Pre-payment penalties are becoming less and less common in the lending industry because of the impact they have had on peoples ability to refinance due to the softening market coupled with a pre-payment penalty that equals to 6 months calculated interest. Pre-pays should, in my opinion, be banished because if an individual is in a loan that he/she needs out of for any reason he/she has to paid thousands of dollars to do so. They do nothing but line the pockets of lending institutions. If a loan has a pre-payment penalty be leary of it because there is a reason they don't want you to be able to get out of it.
Lenders impose pre-payment penalties on option arm loans and arm loans in general because they need to ensure that they collect the interest one way or another and discourage individuals from jumping in and out of loans. So to their defense they are in the business to make money. Something to keep in mind is that there are 2 different types of pre-pays. A "soft" pre-pay is a penalty imposed if the borrower only when they "refinance" the property but is "not" imposed if they "sell" the property, whereas a "hard pre-pay" is imposed both if the borrower "sells or refinances".