Finance
In Missouri, prepayment penalties on home mortgages are:
ARequired by law
BRegulated; qualified mortgages generally cannot have prepayment penalties beyond certain limits✓ Correct
CAlways 5% of the outstanding balance
DIllegal in all cases
Explanation
Dodd-Frank's Qualified Mortgage rules restrict or prohibit prepayment penalties on most residential mortgages. For QMs, prepayment penalties are limited in amount and term or prohibited entirely.
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Key Terms to Know
Loan-to-Value Ratio (LTV)
The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
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.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
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