Are Prepayment Penalties Allowed on QM Loans?
Answer: It depends. Federal credit
unions are prohibited from charging prepayment penalties on any loan including
State-chartered credit unions may charge prepayment
penalties, but only on fixed-rate or step-rate QM loans that are not
higher-priced and where the prepayment penalties are not otherwise prohibited
by applicable law. In addition,
state-chartered credit unions can’t charge a prepayment penalty more than three
years after loan consummation. Furthermore, the prepayment penalty cannot
exceed 2 percent of the outstanding loan balance repaid during the first two
years after consummation, and cannot exceed 1 percent of the outstanding loan
balance repaid during the third year after consummation.
If a state-chartered credit union offers a member a loan
with a prepayment penalty, it must also offer the member an alternative loan
without a prepayment penalty. The alternative loan must be similar to the loan
with the prepayment penalty and have the same interest rate and type
(fixed-rate or step-rate) and term as the mortgage loan with the prepayment
penalty. The alternative loan also must not have deferred principal, balloon or
interest-only payments, or negative amortization.