When is a QM prepayment penalty permitted?

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Multiple Choice

When is a QM prepayment penalty permitted?

The timing of a QM prepayment penalty is the key idea. In a Qualified Mortgage, a prepayment penalty is allowed only in the early years of the loan — specifically within the first three years after origination. After that window, prepayment penalties are not permitted for QM loans. This setup protects borrowers from long-term penalties while giving lenders a limited window to recoup some costs if the borrower pays off early or refinances. So, the penalty can apply during the first three years, but not for the full term or after that initial period.

The timing of a QM prepayment penalty is the key idea. In a Qualified Mortgage, a prepayment penalty is allowed only in the early years of the loan — specifically within the first three years after origination. After that window, prepayment penalties are not permitted for QM loans. This setup protects borrowers from long-term penalties while giving lenders a limited window to recoup some costs if the borrower pays off early or refinances.

So, the penalty can apply during the first three years, but not for the full term or after that initial period.

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