Prepayment Penalties under § 32
12 CFR 226.32(d)(6) & (7) read:
"(6) Prepayment penalties. Except as allowed under paragraph (d)(7) of this
section, a penalty for paying all or part of the principal before the date on
which the principal is due. A prepayment penalty includes computing a refund of
unearned interest by a method that is less favorable to the consumer than the
actuarial method, as defined by section 933(d) of the Housing and Community
Development Act of 1992.
(7) Prepayment penalty exception. A mortgage transaction subject to this section
may provide for a prepayment penalty otherwise permitted by law (including a
refund calculated according to the rule of 78s) if:
(i) The penalty can be exercised only for the first five years following
consummation;
(ii) The source of the prepayment funds is not a refinancing by the creditor or
an affiliate of the creditor; and
(iii) At consummation, the consumer's total monthly debts (including amounts
owed under the mortgage) do not exceed 50 percent of the consumer's monthly
gross income, as verified by the consumer's signed financial statement, a credit
report, and payment records for employment income."
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