Bill would allow early payoff penalties for Kansas real estate investment loans

Rep. Carolyn Caiharr, an Edwardsville Republican, questioned a proponent of a bill that would allow lenders to charge a prepayment penalty to real estate investors. (Screen capture from the House Financial Institutes and Pensions Committee)

TOPEKA — Real estate investors buying residential buildings in Kansas could be charged a penalty for paying off their mortgages early under proposed changes to the Kansas Contracts and Promises statute.

The statute currently bars lenders from charging prepayment penalties on “any home loan” paid off after six months from the day the loan was taken out, the House Financial Institutions and Pensions Committee heard Monday. It doesn’t specify whether those loans are for individual homeowners or for real estate investors buying properties to rent or lease.

House Bill 2497 would add language that allows lenders to charge prepayment penalties for investment properties but leave the ban in place for consumer personal loans.

Michael Stidham testified for Rocket Mortgage in favor of the bill, which he said would give investors more financing options.

Rocket sets lower interest rates for loans that have a penalty for paying off early versus loans with no prepayment penalties, Stidham said.

“A higher interest rate is always going to be required to offset the potential returns if that loan is paid off earlier than anticipated by the investor,” he said.

Allowing lenders to offer lower interest rates and include a prepayment penalty gives real estate investors flexibility to determine the best option for their financial situations, Stidham said.