Under California law, what is the maximum period during which a prepayment penalty may be enforced on a single-family, owner-occupied residential loan made by a licensed California broker?
Correct Answer
C) Prepayment penalties may be enforced for up to seven years from the loan origination date
A loan negotiated by a licensed California real estate broker on a single-family, owner-occupied dwelling falls under Article 7 of the Real Estate Law. Business and Professions Code § 10242.6 allows a prepayment charge only on a prepayment made within seven years of the date the note was executed; after that the borrower may prepay free of any charge. Within those seven years, up to 20 percent of the unpaid balance may be prepaid in any 12-month period without charge, and the charge on the excess may not exceed six months' advance interest. Civil Code § 2954.9, which cuts the penalty period off at five years, applies by its own terms except as provided in section 10242.6, so it does not control the broker-negotiated loan.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
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