Illinois Compiled Statutes 205 ILCS 635/5-8 – Prepayment penalties
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(a) No licensee may make, provide, or arrange a mortgage loan with a prepayment penalty unless the licensee offers the borrower a loan without a prepayment penalty, the offer is in writing, and the borrower initials the offer to indicate that the borrower has declined the offer. In addition, the licensee must disclose the discount in rate received in consideration for a mortgage loan with the prepayment penalty.
(b) If a borrower declines an offer required under subsection (a) of this Section, the licensee may include, except as prohibited by Section 30 of the High Risk Home Loan Act, a prepayment penalty that extends no longer than three years or the first change date or rate adjustment of a variable rate mortgage, whichever comes earlier, provided that, if a prepayment is made during the fixed rate period, the licensee shall receive an amount that is no more than:
(1) 3% of the total loan amount if the prepayment is
(b) If a borrower declines an offer required under subsection (a) of this Section, the licensee may include, except as prohibited by Section 30 of the High Risk Home Loan Act, a prepayment penalty that extends no longer than three years or the first change date or rate adjustment of a variable rate mortgage, whichever comes earlier, provided that, if a prepayment is made during the fixed rate period, the licensee shall receive an amount that is no more than:
Terms Used In Illinois Compiled Statutes 205 ILCS 635/5-8
- Fixed Rate: Having a "fixed" rate means that the APR doesn't change based on fluctuations of some external rate (such as the "Prime Rate"). In other words, a fixed rate is a rate that is not a variable rate. A fixed APR can change over time, in several circumstances:
- You are late making a payment or commit some other default, triggering an increase to a penalty rate
- The bank changes the terms of your account and you do not reject the change.
- The rate expires (if the rate was fixed for only a certain period of time).
- Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
- Mortgage loan: A loan made by a lender to a borrower for the financing of real property. Source: OCC
- Variable Rate: Having a "variable" rate means that the APR changes from time to time based on fluctuations in an external rate, normally the Prime Rate. This external rate is known as the "index." If the index changes, the variable rate normally changes. Also see Fixed Rate.
(1) 3% of the total loan amount if the prepayment is
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made within the first 12-month period following the date the loan was made;
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(2) 2% of the total loan amount if the prepayment is
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made within the second 12-month period following the date the loan was made; or
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(3) 1% of the total loan amount if the prepayment is
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made within the third 12-month period following the date the loan was made, if the fixed rate period extends 3 years.
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(c) Notwithstanding any provision in this Section, prepayment penalties are prohibited in connection with the sale or destruction of a dwelling secured by a residential mortgage loan.
(d) This Section applies to loans made, refinanced, renewed, extended, or modified on or after the effective date of this amendatory Act of the 95th General Assembly.
(d) This Section applies to loans made, refinanced, renewed, extended, or modified on or after the effective date of this amendatory Act of the 95th General Assembly.