Question by davedmaine: I have a commercial loan secured with my home. Was told the early payoff penalty was calculated by rule of 78.?
The loan is for 7 years . I’m in Maine and the loan company is based in NY. I thought the rule of 78s was illegal for loans over 5 years? Does that not apply to business loans? Does it matter that the loan was secured with my home?
Best answer:
Answer by MadMan
You are correct. Using the “Rule of 78s” formula was outlawed for any loan over 5 years in 1992. But the more important question is what kind of loan do you have? Is it a simple interest loan or a pre-computed loan? If it is the latter, as it sounds like, there is no point in paying off the loan early as you have to pay all the interest anyway. BTW, using the “Rule” is not allowed in New York State but I think that it is allowed in Maine.
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