At Visio Lending, we pride ourselves on how our loan products can be tailored to meet the needs of our rental investor clients. That’s why almost every aspect of your loan including rate structure, origination fee, and prepayment penalty can be customized. We’ve spent time on our blog category “The Visio Box” educating our borrowers about our optionality. Now, we want to hone in on our prepayment penalty options.
A prepayment penalty is a contractual clause that states the borrower is going to pay the lender an additional fee if the borrower pays off the loan early. Visio Lending uses prepayment penalties to protect ourselves from financial loss for early payment, since originating loans is expensive. However, borrowers should not necessarily view prepayment penalties as a “penalty,” nor do they even have to have an impact. We’ll explain further by showing you Visio's prepayment penalty options: 5/4/3/2/1, 3/2/1, 3/0/0.
What it means: This is our standard prepayment penalty option. Essentially with this option, you pay a fee of 5 pts for paying the loan back in year one, 4 pts for paying the loan back in year two, 3 pts for paying the loan back in year 3, etc.
Use when: You plan on keeping the rental property for long-term, if you keep the property more than five years, this penalty goes away
Strategy best for: Permanent Rental
Pair with: Our 30-Yr Fixed Rate Structure and higher origination fees
3/2/1 or 3/0/0
What it means: The first year, you have a prepayment penalty of 3 pts that decreases a point every year over three years or the first year you have a prepayment penalty of 3 pts and then it goes away after that
Use when: You plan on selling the property within the first three years of purchasing
Strategy best for: Transitional Rental
Pair with: Our 5/1 ARM or 7/1 ARM rate structure, 1% standard origination fee
Interested in learning more about how Investors are using our rental investment programs? Check out our Investors Resources page for more tips!
Editor's Note: This post was originally published in December 2019 and has been updated in June 2020 for freshness and accuracy.