The British consumers are up in arms and are trying to have the use of Exit Fees for mortgages removed in the UK. Apparently, lenders will charge a mortgage holder this exit fee to pay off an existing loan and transfer it to another lender. It is cast as an administrative fee which lenders on the average charge upwards of 250£ (500US) per loan.

     The issues are that, in many cases the fees are not disclosed at the time of the closing and they may be increase by the lender during the course of the loan. This administrative fee covers approximately 50£ of administrative cost, the balance is considered a junk fee.The Financial Services Authority is now looking into this. They are going to force lenders to remove the fee, lower it or charge a fee that is no more than what was originally disclosed. They will also make the lender justify the charge by explaining the true cost of the admin task. Furthermore, they are allowing past borrowers to collect a refund of this fee paid out previously it is considered unjust. Bravo!

     The United States does not have this basic Exit Fee. I am truly shocked. What we do have are pre payment penalties and assignment fees. A prepayment penalty is paid if a mortgage loan is paid off before a specified date. The dollar or percentage amount is spelled out in the body of the loan, will not change and the time period is specific. Some states and banks do not allow this fee to be charged at any time. Typically a prepayment penalty is calculated as percentage or dollar amount based on 80% of the outstanding loan amount. The timeframe could be 1 to 3 years.

     For example: The prepayment penalty is 3% of the principal due if the loan is paid off within the first 36 months of the loan. The loan is $100,000. The prepayment penalty is calculated: 100k x 80% is 80,000. 3% penalty is 2400. Got it?You should know this in advance of your loan. Always ask if there is a prepayment penalty. If there is one, make sure to see the terms prior to the closing and again at the closing to know they did not change.

     An assignment fee is what one pays in the State of New York to pay off an existing loan with a new lender. The reason to do this, is to avoid paying Mortgage Tax to the State. There are administrative fees which are typically charged by the old lender, their attorney and the new lender’s attorney. Junk fees that are charge arbitrarily by all.

Try and fight this in New York!