PSA: My loan documents had a prepayment penalty clause buried on page 23

I was reviewing a deal on a small strip mall in Fresno and found a prepayment penalty that would have cost me $12k if I sold within 3 years. It took me 4 hours of digging through footnotes to spot it because the lender didn't mention it once in our calls. Has anyone else run into hidden fees or terms that slipped past their initial review?

2 comments

2 Comments

the_kai9d ago

Call me crazy but I actually think prepayment penalties are not always a bad thing. Lenders usually offer a slightly lower interest rate in exchange for that penalty clause. If you weren't planning on selling in the first few years, you might have come out ahead on the monthly payments. Did you compare the rate you got versus what a no-penalty loan would have cost you? Sometimes that hidden fee is actually a trade off that saves you money if you hold the property long enough.

ninamartin9d ago

the 12k number hits hard, i get it. i used to be all about that trade off logic too, thinking lower rate plus penalty was a no brainer if you planned to hold. but then i actually got burned on a deal in bakersfield where a tenant wanted to buy me out after 18 months and the penalty ate almost all my profit. it changed my mind completely because you never really know what will happen with a property. those clauses are sneaky and lenders definitely dont highlight them on purpose.