Question:

How is the prepayment penalty disclosure on a mortgage done?

Answer:

The Truth in Lending (TIL) is supposed to provide the prepayment penalty disclosure on a mortgage. It actually does so, but homeowners receiving a TIL for the first time may be confused and accept a prepayment penalty without knowing.

The Prepayment section in the TIL lies at the end of this document.

The TIL prepayment penalty disclosure on a mortgage may be confusing.

The TIL does not explicitly states

  • Yes, there will be a prepayment penalty;
  • No, there won't be a prepayment penalty.

Rather, it provides a blank about a possibility for borrowers that may/may not have to pay a prepayment penalty, which is by any means unclear.  

You are advised to examine this section and the entire mortgage agreement with an attorney to make sure you understand every rights and responsibilities of the mortgage loan. This is how you avoid predatory lending terms (high rate, no adjustment caps, prepayment penalties, etc.). First-time borrowers are advised to make use of home ownership counseling prior to taking out a mortgage.

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