Federal Mortgage LawsQuestion 47 of 400
Under Regulation Z, a mortgage loan generally may include a prepayment penalty only if the loan is a qualified mortgage that is not higher-priced and the penalty:
a.Is limited in amount and duration (no more than the first three years) and the borrower is offered an alternative loan without a penalty
b.May last for the entire loan term
c.Applies to all adjustable-rate mortgages automatically
d.Is unlimited if disclosed
Explanation
Regulation Z restricts prepayment penalties on covered mortgages: they are allowed only on certain qualified mortgages, are capped in amount, may not extend beyond the first three years, and the lender must offer an alternative loan without a prepayment penalty. Penalties cannot run the full term, apply automatically to all ARMs, or be unlimited merely because disclosed. These limits protect borrowers who refinance or pay early.
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