can someone please clarify why loan officers/brokers profit on the back end(YSP) when they put in a pre payment penalty on the loan?

are there fixed loans or ARMS with no pre payment penalties? if so, what are the requirements to obtain these loans?

its specifically for investor NOO

Alvin, most sub-prime lenders require these so that they are guaranteed to make a minimum of the pre-payment amount for the cost of servicing the loan. Most sub-prime lenders will not allow a broker to make (YSP) if they buy out the pre-pay, and will also add a hit to the rate around 1 to 1.5% in general.

In reality if you lend someone say $200,000 and they sale thier home in say 3 to 6 months with no pre-pay then the lender really has gained anything. All they did was tie up $200,000 that could have been used on a long term buyer. All lenders that do pre-payment penalty loans ofer an option for the buyer to buy it out, but it comes with a pretty large cost to close the loan.

Conforming A credit lenders also require these in certain loan scenarios. Investment property that is going to be closed than flipped in 3 months does not ofer much to the bank for taking the risk.

i see

as a loan officer/broker, would you give yourself a pre payment penalty if you were seeking a personal investment loan?

I would as long as I was actually planning on holding the property for 2 or 3 years.

It all depends on your exit strategy. If you're thinking of renting the property for a year or two then opt for a 1 or 2 year PPP. If you're thinking of rehabbing and selling right away, then find a program that has no PPP. The least [shortest] PPP you have, the more hit you'll have to take on the rate.

Promise Land is "dead on". If you are willing to take a hire rate, then you should be able to get a loan without a prepay. Also be prepared for slightly hire closing costs.

EXCELLENT. Couldn't have explained it better myself, way to go team!