Finance
In New Mexico, 'prepayment penalties' on mortgages are provisions that:
AAlways apply to all loans
BCharge the borrower a fee if they pay off the loan early, before the end of a specified period✓ Correct
CAre prohibited under all federal loan programs
DOnly apply to commercial loans
Explanation
Prepayment penalties charge borrowers for paying off the loan before a specified period. They are prohibited on FHA and VA loans and QM loans with certain terms, but may appear in some conventional or hard money loans.
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Key Terms to Know
Promissory Note
A written promise to repay a loan under specified terms — the borrower's personal financial obligation in a real estate transaction.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
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.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
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