Illinois prepayment penalty rules

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 extend beyond three years or the first rate adjustment of a variable-rate mortgage, whichever comes first, and is capped at 3% of the loan amount if prepaid within the first year, 2% in the second year, and 1% in the third year (if the fixed-rate period extends three years). Prepayment penalties are prohibited in connection with the sale or destruction of the dwelling.