Where is the prepayment penalty typically disclosed?

The prepayment penalty is typically disclosed in a rider to the trust deed as part of the Loan Estimate (LE) and Closing Disclosure (CD). This specific location is important as it ensures the borrower is aware of any financial consequences associated with paying off their loan early. By including this information in the rider, which is a legal document attached to the trust deed, it provides clarity and sets clear expectations regarding the terms of the mortgage.

Disclosures in the Loan Estimate and Closing Disclosure are crucial for compliance with the Truth in Lending Act and the Real Estate Settlement Procedures Act, which aim to protect consumers by providing them with necessary information before closing on a loan. The rider includes all relevant details about the prepayment penalty, such as the amount, duration, and conditions under which it would apply.

This is essential for borrowers to make informed decisions regarding their loans, helping them to understand the full implications of borrowing, especially if they might consider refinancing or paying off their loan early.