Is mortgage prepayment penalty law different throughout the U.S.?
Yes. The mortgage prepayment penalty law differs by state and lender. A lender doesn’t want to lose their profit when the borrower walks away since they lose unearned and unpaid interest on the loan. Therefore, lenders protect themselves with mortgage prepayment penalties. The loan is usually prepaid through house sale or refinancing, so a hard or soft prepayment penalty may apply. Hard prepayment penalties forbid both sale and refinancing; a soft home loan prepayment penalty would forbid only refinancing. Mortgage prepayment penalty laws may protect the primary home. Some states have passed consumer protection laws, in which case lenders are forbidden to demand prepayment penalty on the first mortgage on a primary home. However, second mortgages on residential loans and any liens on investment properties don’t entertain this protection and a penalty is likely to be included and enforced should circumstances arise. Sometimes, state mortgage prepayment penalty laws will restrict the pre
