Prepayment Penalties on California Bridge Loans
Prepayment penalties are not universal on bridge loans. North Coast Financial does not charge prepayment penalties on any of its California bridge loans. If you pay off the loan early, whether in 30 days or 9 months, you owe nothing beyond the outstanding balance and accrued interest to the payoff date.
Not all bridge lenders operate this way. Some private lenders charge a minimum interest guarantee, requiring the borrower to pay at least 3 to 6 months of interest regardless of when the loan is paid off. Others charge a flat prepayment fee. When comparing bridge lenders, ask specifically about prepayment terms.
Bridge loan borrowers often pay off early when their departing home sells faster than expected. Without a prepayment penalty, an early payoff reduces your total cost. With a prepayment penalty, you pay the penalty regardless of when you pay off, which increases your total cost and removes the incentive to list and sell quickly.
What to Ask Any Bridge Lender
Before signing a bridge loan, ask these three questions about prepayment: Is there a prepayment penalty? Is there a minimum interest guarantee? Is there a lockout period during which early payoff is not permitted? The answers determine your actual flexibility and total potential cost.
California Law on Prepayment Penalties
California has restrictions on prepayment penalties for certain residential loans under the California Financial Code. For business-purpose and investment property bridge loans, these protections may not apply in the same way. Review the specific loan terms with a qualified advisor if you are unsure about prepayment provisions in your loan documents.