Prepayment Penalty Rules by state
Whether prepayment penalties are permitted, and any restrictions on term, amount, or loan type by state.
44 states covered. Select a state for the full answer and its citation.
| State | Prepayment Penalty Rules |
|---|---|
| Alabama | Prepayment penalties on residential first-lien mortgage loans are generally prohibited under the Alabama Consumer Credit Act. However, they are permitted in a simple interest transaction with an original amount financed of $2,000 or more if… |
| Alaska | Alaska generally prohibits prepayment penalties on loans for one-to-four-family dwellings, except for federally insured loans that require a prepayment penalty. No time limits or caps are specified beyond this exception. |
| Arkansas | Yes, Arkansas permits prepayment penalties on residential first-lien mortgage loans, but only within the first 36 months after loan origination, with decreasing caps: 3% in year one, 2% in year two, and 1% in year three. No penalty is allow… |
| California | California permits prepayment penalties on residential first-lien mortgage loans, but for owner-occupied properties (4 units or less), penalties are allowed only within the first five years. Up to 20% of the original principal may be prepai… |
| Colorado | Colorado does not prohibit prepayment penalties on residential first-lien mortgage loans. However, for adjustable-rate mortgages, a prepayment penalty that extends past the adjustment date creates a presumption that the loan does not provid… |
| Connecticut | Connecticut does not restrict prepayment penalties on residential first-lien mortgages (except for reverse mortgages and graduated payment mortgages, where penalties are prohibited). For first mortgages, prepayment penalties are generally a… |
| Delaware | Delaware permits prepayment penalties on residential mortgage loans, including first-lien loans, if specified in the loan agreement. No state law imposes limits on the amount or duration of such penalties. |
| Florida | Prepayment penalties are prohibited for loans under Chapter 516 (up to $25,000). For notes silent on prepayment, Fla. Stat. § 697.06 allows prepayment without penalty but does not bar contractual penalties. High-cost home loans under § 494.… |
| Georgia | For high-cost home loans, Georgia permits prepayment penalties only in the first 24 months after closing, with caps of 2% of the amount prepaid in the first 12 months and 1% in the second 12 months. No prepayment penalties are allowed after… |
| Illinois | Prepayment penalties are permitted for first-lien residential mortgage loans in Illinois, but only if the licensee offers a loan without a prepayment penalty in writing and the borrower initials the offer to decline it. The penalty may not… |
| Indiana | Indiana permits prepayment penalties on residential first-lien mortgage loans, but subject to limitations. The penalty may not exceed 2% of the amount prepaid within 60 days of the prepayment date, and cannot be imposed after three years fr… |
| Iowa | Iowa prohibits prepayment penalties on loans secured by real estate mortgages, including residential first-lien loans. No penalty or additional charge is allowed beyond the interest due for the period the borrower had use of the money. The… |
| Kansas | Kansas permits prepayment penalties on home loans secured by a real estate mortgage only if the prepayment occurs within six months of the note's execution. After six months, no penalty may be assessed. The statute does not specify a cap on… |
| Kentucky | Prepayment penalties are permitted on residential first-lien mortgages in Kentucky, but they cannot exceed 5% of the outstanding loan balance and cannot be assessed after the fifth anniversary of the mortgage. The penalty terms must be prom… |
| Louisiana | Louisiana permits prepayment penalties on residential mortgage loans with a maximum of 5% of the unpaid principal balance if prepaid in the first year, decreasing by 1% each subsequent year to 1% in the fifth year. No prepayment penalty is… |
| Maine | Prepayment penalties are generally prohibited, but supervised financial organizations may impose a reasonable charge on consumer loans secured by an interest in land (other than high-cost mortgages) if the charge is reasonably calculated to… |
| Maryland | Maryland prohibits prepayment penalties on residential first-lien mortgage loans. Under Md. Code Com. Law § 12-105(d), a lender may not require or authorize any penalty for prepayment of a mortgage loan, which includes first-lien residentia… |
| Massachusetts | Prepayment penalties are permitted but limited. For prepayment within 36 months of the note date, the penalty is capped at the lesser of the balance of the first year's interest or 3 months' interest. If prepayment is due to refinancing wit… |
| Michigan | Michigan restricts prepayment penalties on first-lien residential mortgage loans. Under MCL 438.31c(2)(c), a lender may charge a prepayment fee or penalty of no more than 1% of the amount prepaid if made within three years of the loan date,… |
| Minnesota | Minnesota permits prepayment penalties on prime loans but restricts them: no penalty for partial prepayment, for prepayment upon sale of the property, or for prepayment more than 42 months after loan date; the penalty is capped at the lesse… |
| Mississippi | Mississippi permits prepayment penalties on residential first-lien mortgage loans, but only in amounts authorized by Miss. Code Ann. § 75-17-31. No prepayment penalty may be charged for prepayment due to insurance proceeds or refinancing by… |
| Missouri | Missouri permits prepayment penalties on residential first-lien mortgage loans, but capped at 2% of the outstanding balance at prepayment. No penalty may be charged if the loan is paid off after five years from origination and before maturi… |
| Montana | Montana permits prepayment penalties on residential first-lien mortgage loans but requires disclosure of the penalty amount or formula and compliance with federal laws and rules. No state-specific time limits or caps are imposed; instead, f… |
| Nebraska | Prepayment penalties are not permitted on residential first-lien mortgage loans made by building and loan associations under Nebraska law. The statute prohibits charging any fine or penalty for any cause, except as authorized by Neb. Rev. S… |
| Nevada | Nevada law permits prepayment penalties on residential first-lien mortgage loans as agreed by the parties. NRS § 99.055 explicitly allows any penalty for prepayment to which the parties agree when the loan is made, without imposing statutor… |
| New Hampshire | Prepayment penalties are permitted on first-lien mortgage loans in New Hampshire, provided they are conspicuously and clearly set forth in the note and printed in bold type. The statute does not specify any time limits or caps on the penalt… |
| New Jersey | Prepayment penalties are prohibited. Borrowers may prepay a mortgage loan at any time without penalty. |
| New Mexico | New Mexico prohibits prepayment penalties on home loans, including first-lien residential mortgage loans. Any contractual provision imposing a penalty or premium for prepayment is unenforceable. No time limits or caps apply because the proh… |
| New York | Prepayment penalties are permitted only during the first year after loan origination, and only if expressly provided in the loan contract and not prohibited by Banking Law §§6-l or 6-m. After one year, no prepayment penalty may be imposed.… |
| Ohio | Ohio generally permits prepayment penalties on residential first-lien mortgages only within the first five years after execution, capped at 1% of the original principal amount; after five years, no penalty is allowed. For first-lien mortgag… |
| Oklahoma | For higher-priced mortgage loans (first-lien loans with APR exceeding average prime offer rate by 1.5+ points), prepayment penalties are permitted only if they do not apply after the first two years, do not apply when prepayment is from a r… |
| Oregon | Oregon permits prepayment penalties on first-lien residential mortgage loans with a term of more than three years, provided the maximum penalty for each year is clearly stated in the loan agreement and promissory note. There is no statutory… |
| Pennsylvania | Pennsylvania prohibits prepayment penalties on residential mortgage loans. Loans contracted on or after January 30, 1974 may be prepaid in full without any penalty or other charge before maturity. |
| Rhode Island | Rhode Island permits prepayment penalties on first-lien mortgage loans for dwellings with up to 4 units, but with restrictions. Under the default rule (subsection (a)), a penalty of up to 2% of the balance due may be charged only if prepaym… |
| South Carolina | South Carolina prohibits prepayment penalties on first-lien mortgage loans where the aggregate amount advanced does not exceed $150,000. For loans above $150,000, no state-specific restriction is found; federal law governs, which generally… |
| Tennessee | Tennessee permits prepayment penalties on residential first-lien mortgage loans as a matter of contract, subject to disclosure requirements for consumer loans not covered by the federal Truth in Lending Act. No statutory time limit or cap o… |
| Texas | Texas permits prepayment penalties on residential first-lien mortgage loans where the interest rate does not exceed 12% per year. For loans with an interest rate greater than 12% on a residential homestead, prepayment penalties are prohibit… |
| Utah | For high-cost mortgage loans, Utah permits prepayment penalties but limits them to a maximum of 36 months after loan origination and caps the penalty at 80% of the total interest from the six scheduled payments immediately preceding prepaym… |
| Vermont | Vermont prohibits prepayment penalties on all loans, including residential first-lien mortgage loans. A borrower may prepay a loan at any time without any prepayment premium or penalty. |
| Virginia | Prepayment penalties are permitted on loans secured by a home occupied by the borrower, but the penalty cannot exceed 2% of the prepayment amount. There is no specified time limit for the penalty period. |
| Washington | Washington permits prepayment penalties only on adjustable-rate mortgages (ARMs) and only if the penalty does not extend beyond 60 days prior to the initial reset period. Prepayment penalties are otherwise prohibited on residential mortgage… |
| West Virginia | Prepayment penalties are permitted on first-lien mortgage loans only within the first three years after origination, with a maximum penalty of 1% of the original principal amount. However, prepayment penalties are prohibited on loans from i… |
| Wisconsin | Wisconsin permits prepayment penalties on covered loans (as defined in the Wisconsin Consumer Act) only for fixed-rate loans exceeding $25,000. The penalty is allowed solely within the first 36 months after consummation and is capped at 60… |
| Wyoming | Prepayment penalties are permitted on residential first-lien mortgage loans in Wyoming, provided the lender discloses the penalty in writing and obtains the borrower's written consent. The statute does not impose any time limits or caps on… |
Other state comparisons
- Disclosure Requirements by state (38 states)
- Required Documents by state (30 states)
- Permissible Fees by state (17 states)
- High-Cost Thresholds by state (3 states)
Researched and verified against primary sources by AI, with the controlling citation shown on every answer. Not human-reviewed and not legal advice — confirm against the cited source before relying on it.