Mortgage lenders may offer penalty options for some home loans

Mortgage lenders may offer a loan with a prepayment penalty or similar charge. This applies to nonpurchase money mortgage loans on Rhode Island property 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. The penalty may not apply to a prepayment more than 60 months after the loan date. The provision states that it would take effect upon passage.

A lender offering the penalty-based mortgage must also make a similar mortgage available under the section's repayment limits. The rules cover mortgages on Rhode Island property with owner-occupied homes containing no more than four dwelling units. For the penalty option, the borrower must receive clear written disclosure and agree to the terms. The text says no penalty may be charged after 60 months. Under the standard option, full repayment may be made after the first year without a penalty, and first-year penalties or other charges may not exceed 2% of the remaining balance. The provision states that these rules would take effect upon passage.