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I am a homeowner in the USA. Interest rates have dropped recently and I am exploring the possibility of refinancing my home loa

My existing home loan stipulates that the lender cannot charge a prepayment penalty. What I interpret this to mean is that they cannot charge a fee if I pay off my loan early. Refinancing implies that I pay off my existing loan early and in full, and take a new loan.

As a part of the refinancing process, the loan servicer for my existing loan has added a "Payoff Calculation Fee" in the amount of $25 to my monthly amount due.

Questions:

  1. Really? What part of running a simple computer calculation necessitates a $25 charge? In my line of work, if I could charge $25 every time I had to click a button to have a computer calculate something, I'd own my house outright by now.
  2. Can this fee be interpreted as a "prepayment penalty" in legal terms? It is a fee that is required in order to prepay the loan in full, so I don't see how it couldn't be.
  3. I did not agree to have my mortgage broker contact my existing loan servicer to acquire this information. This fee has been charged without me consenting to it. Do I have any recourse here?
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  • #2 and #3 sound more like legal questions than personal finance.
    – glibdud
    Aug 28 '20 at 21:10
  • That's really annoying! I heard a story about this a few years ago where someone was trying to pay off his mortgage and the bank wanted to charge a $25 fee before providing the amount. He decided to make a guess without the actual amount. I think he was off by $6 so sent another check, and then was off by 2 cents to sent another payment of 2 cents, just to avoid the $25 fee out of principle. Heh. Most likely, at this point, you're stuck. But I'd be interested to know if the refi never went through, if they would retract it or not... Seems completely unreasonable to me.
    – TTT
    Aug 28 '20 at 21:19
  • What state are you in?
    – Joe
    Aug 28 '20 at 21:55
  • Your payoff amount is not just the remaining principal, but the principal plus all interest accrued since your last payment date. There's no reason to compute that daily, rather than once a month when they actually need to know how much interest has accrued, so the fee is probably there to deter people from casually asking for the payoff amount.
    – chepner
    Aug 28 '20 at 22:22
  • Nobody is sitting there with pen and paper being paid hourly to calculate my payoff amount. A computer calculates it, and it takes milliseconds to compute. So the $25 is for...?
    – Mark
    Aug 29 '20 at 0:33
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Can this fee be interpreted as a "prepayment penalty" in legal terms? It is a fee that is required in order to prepay the loan in full, so I don't see how it couldn't be.

The $25 fee is not considered a pre-payment penalty. It is likely that the fee is disclosed in the Mountain of paperwork for the original mortgage. Or it was mentioned in a notice they sent you over the years adjusting their fees.

If every year you ask them for this number, they will gladly charge you the fee every time you ask.

A prepayment penalty would be expressed as a percentage of the loan for the first X years of the loan, or a declining percentage of the loan for the first x years. In the worst case it could be a percentage of the loan over the entire life of the loan. But I believe that those types of loans have been unavailable in the US for many years. Most loans in the US don't have a prepayment penalty.

What part of running a simple computer calculation necessitates a $25 charge? In my line of work, if I could charge $25 every time I had to click a button to have a computer calculate something, I'd own my house outright by now.

You are going to rediscover that the process of recording deed and mortgage information is expensive. In my county this is the list of [fees for recording a quitclaim deed]:

Fee for quitclaim deed between husband and wife: $.50 State Tax; $.17 County Tax; Transfer Fee; Clerk’s Fee; Technology Trust Fund; Deed Processing Fee;Open Space Preservation Fee.

Other types of documents are more expensive.

I did not agree to have my mortgage broker contact my existing loan servicer to acquire this information. This fee has been charged without me consenting to it. Do I have any recourse here?

As part of doing their job they need to know exactly how much of a loan you need. A big part of that number is the payoff amount, and the daily interest. The most accurate source is the lender. Did the broker you hired know how much is was going to be? did they know you would be directly billed? I have no idea. You could mention it to them, and see what they say.

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