Which loans may legally charge prepayment penalties?

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Multiple Choice

Which loans may legally charge prepayment penalties?

Prepayment penalties are tightly regulated to protect borrowers from extra costs if they pay off a loan early. The only mortgage category that may legally charge a prepayment penalty is a fixed-rate conventional loan that qualifies as a Qualified Mortgage and is not a higher-priced mortgage loan. Government-backed loans (FHA, VA, USDA) generally prohibit prepayment penalties. Adjustable-rate mortgages are not eligible for these penalties under the applicable rules, and loans that are higher-priced (HPMLs) are also prohibited from including prepayment penalties. So the permitted scenario is specifically fixed-rate conventional QMs that are not HPMLs.

Prepayment penalties are tightly regulated to protect borrowers from extra costs if they pay off a loan early. The only mortgage category that may legally charge a prepayment penalty is a fixed-rate conventional loan that qualifies as a Qualified Mortgage and is not a higher-priced mortgage loan. Government-backed loans (FHA, VA, USDA) generally prohibit prepayment penalties. Adjustable-rate mortgages are not eligible for these penalties under the applicable rules, and loans that are higher-priced (HPMLs) are also prohibited from including prepayment penalties. So the permitted scenario is specifically fixed-rate conventional QMs that are not HPMLs.

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