Finance
A Connecticut borrower's mortgage has a 'prepayment penalty' clause. Under the Dodd-Frank Act, prepayment penalties are restricted on:
AAll mortgages regardless of type
BQualified mortgages (QM), especially during the first three years✓ Correct
COnly FHA and VA loans
DOnly adjustable-rate mortgages
Explanation
The Dodd-Frank Act restricts prepayment penalties on Qualified Mortgages. For most QMs, prepayment penalties are only permitted during the first three years, must be capped, and cannot be imposed at all after the third year.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Deed of TrustA security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.
Right of First RefusalA contractual right giving a party the opportunity to match any offer received before the owner can accept it from a third party.
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