I am getting the loan for the rental property. I have the following two options for the prepayment penalty.
Loan
5 year fix with 20 year amortization.
rate: 7%
Prepayment penalty option 1:
2% penalty if the loan is paid before 5 years.
Prepayment penalty option 2:
first year: 5%
second year: 4%
third year: 3%
fourth year: 2%
fifth year: 1%
I am not planning on selling the property before 5 years but you never know. I think that second option helps me only in the last year so I am leaning towards going with the first option as interest rate is same for both options.
I will appreciate any comments.