Mortgage lenders would follow prepayment rules for owner-occupied homes

Mortgage lenders would have to allow full payoff without a penalty after one year and cap first-year prepayment charges at 2%. These rules cover owner-occupied Rhode Island properties with one to four dwelling units and apply to banks, credit unions, finance companies, and other mortgage lenders. Prepaid interest or other loan charges would be rebated under regulations from the Department of Business Regulation. The no-penalty rule applies after the first year of the loan, while the 2% charge limit applies during the first year.

Mortgage lenders could offer a nonpurchase-money mortgage with a prepayment penalty despite the standard limits. The option covers mortgages on owner-occupied Rhode Island properties with one to four dwelling units. The lender must clearly disclose the penalty's terms, conditions, and amount in writing. The borrower must agree to those terms. A lender offering this option must also offer a mortgage that follows the standard limits and federal rules. No prepayment penalty could apply to a payoff more than 60 months after the loan date.