California prepayment penalty rules

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 prepaid annually without penalty; any excess prepayment may be charged a penalty not exceeding six months' advance interest on the excess. For non-owner-occupied residential loans, a written agreement may impose a prepayment charge without the statutory five-year limit or 20% exemption. No penalty is allowed if the property is damaged by a natural disaster declared a state emergency and the prepayment is related.