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
D) Prepayment penalties may be enforced only during the first five years of the loan term
Under California Civil Code §2954.9, prepayment penalties on single-family, owner-occupied residential loans are limited to the first five years of the loan term. After five years, the borrower has the right to prepay without penalty. Additionally, the penalty amount is capped — it cannot exceed six months' advance interest on the amount prepaid in excess of 20% of the original loan balance in any 12-month period.
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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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