Under what circumstances is a prepayment penalty permitted on a Maryland mortgage loan?

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In Maryland, prepayment penalties on mortgage loans are prohibited under all circumstances. This means that, regardless of the terms outlined in the loan agreement or any agreements made in writing by the borrower, lenders are not allowed to enforce prepayment penalties. This protective measure is designed to give borrowers the flexibility to pay off their loans without incurring additional fees, encouraging homeownership and providing financial relief in terms of debt management.

The other options suggest scenarios under which a prepayment penalty might be acceptable, but Maryland law specifically prohibits any such practice to ensure that borrowers are not penalized for paying off their loans early. In this context, it is fundamental for mortgage professionals, including loan originators, to understand state-specific regulations regarding prepayment penalties to ensure compliance and protect borrowers' rights.