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On a California covered loan, prepayment penalties are:

Correct Answer

D) Limited to the first 36 months of the loan

California law limits prepayment penalties on covered loans to the first 36 months. After 36 months, no prepayment penalty may be charged.

Answer Options
A
Prohibited entirely
B
Allowed for the first 12 months only
C
Unlimited if disclosed at closing
D
Limited to the first 36 months of the loan

Why This Is the Correct Answer

California law limits prepayment penalties on covered loans to the first 36 months. After 36 months, no prepayment penalty may be charged.

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