Predatory Lending Awareness Quiz

9. A prepayment penalty is an extra fee charged to you for paying off a loan early.


True. A subprime mortgage carries a higher interest rate than a prime rate loan. Historically, up to 80 percent of subprime mortgage loans have had a substantial prepayment penalty. A new Federal Reserve Board rule bans any prepayment penalty if the payment can adjust during the first four years of the loan. For other high-priced loans, the prepayment penalty period cannot last for more than two years. The new rules also include other protections for subprime borrowers.

For more information, see

Squires, G.D. (2004). Why the Poor Pay More. Westport, CT; Praeger Publishers.