By the Division of Banks

Limitations On Mortgage Loan Prepayment Penalties

Mass. Gen. Laws chapter 183, section 56 governs prepayment penalties on mortgage loans within the Commonwealth. The limitations relative to prepayment penalties set forth in the statute are applicable only to the first liens on 1-3 family, owner-occupied properties. It is the position of the Division of Banks that the prepayment penalties set forth in said section 56 are not applicable to non-owner occupied mortgage loans or to second mortgage loans. Prepayment penalties on all mortgage loans remain a matter of contract between the parties, and in order to collect a prepayment penalty, the penalty provision must be included in the loan contract between the lender and borrower.