At times, property owner sold off his existing property due to profit or varies reasons. This sale may result in a penalty if the home loan is still under lock in period. Generally, the penalty is 1.5% of the outstanding loan. If the total outstanding loan is 1m, the penalty that the property owner needs to pay is $15k.
The good news is – it is possible to recover the penalty.
If the property owner is buying a new property, he can take up a new home loan with the existing bank and request the penalty to be refunded. Depending on the new home loan amount, the bank might refund you the penalty on a pro-rated basis.
Original loan amount = $1m
Sold off house and pay penalty of 1.5% = $15k
Took a new loan of 800k
Refund of penalty = 800k/1m = 80%. 80% x 15k = $12k
Take note that the penalty refund is subjected to approval from the banks. Usually they allow the refund if the property owner is able to bring in a new home loan under his name within the next 6 months.