To establish an open-end HELOC we require a minimum line of $5,000. We have an early termination fee of $250 if the account is paid off within the first two years of opening. The bank also pays fees on the borrower’s behalf. If I understand correctly, we are allowed a 2% maximum prepayment penalty within the first 3 years. However, since we are paying fees on the borrower’s behalf, can we reduce the $250 early termination fee by the amount of fees we pay on the borrower’s behalf? We are trying to ensure we do not have any HOEPA loans.
Given the amount of the prepayment penalty you almost certainly with have a section 32/HOEPA loan. You can eliminate the concern by converting your $250 fee to a 2% of the amount prepaid fee.
The regulations do not mention using the amount of fees paid on the consumer’s behalf as an offset against the prepayment penalty. The regulations do mention that fees paid by the creditor on behalf of the consumer are prepayment penalties if reinstated in the event of prepayment.