H8104AReal Estate

Property - Mortgages of Real Property

This bill restricts state limitations on mortgage prepayment penalties strictly to owner-occupied properties with up to four dwelling units.

Introduced37 Yea0 Nay0 Not voting

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Affected

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Introduced Feb 27, 2026Committee House Judiciary

Plain-English Summary

This bill changes the rules regarding prepayment penalties on real estate mortgages for properties with up to four dwelling units. It specifies that the state's limitations on mortgage prepayment penalties now only apply to properties that are occupied by the owner. To enforce a prepayment penalty on these owner-occupied properties, lenders must clearly disclose the penalty terms in writing, obtain the borrower's consent, and ensure no penalty is charged if the loan is paid off more than five years (60 months) after it was issued.

For younger readers

When people buy a house, they usually borrow money from a bank called a mortgage. Sometimes, if they pay back the borrowed money too fast, the bank charges them an extra fee called a prepayment penalty. This bill updates the rules for these fees. It says that the state's rules protecting borrowers from these extra fees will now only apply to people who actually live in the house they bought. The bank must also clearly tell the borrower about the fee in writing, and they can't charge it if the loan is older than five years.

Who & Where It Applies

Impacted groups

HomeownersReal estate investors and landlordsMortgage lendersBanks and credit unionsProspective home buyers

Impacted communities

All

Constitutional & Fiscal Check

None Likely

Estimated cost

None

Estimated revenue

None

Bill Analysis

Both viewpoints

For Progressives

Maintains important consumer protections against predatory prepayment penalties for primary homeowners, ensuring that everyday people are not trapped in bad loans.
Mandates strict transparency by requiring lenders to prominently and conspicuously disclose prepayment penalties in writing, empowering borrowers to make informed financial decisions.
By removing prepayment penalty protections for non-owner-occupied investment properties, the bill avoids subsidizing corporate landlords and real estate investors with consumer protections meant for everyday residents.
Removes prepayment penalty protections for non-owner-occupied properties, which could financially burden small, mom-and-pop landlords who rent out multi-family homes.
Increased financial costs for landlords through unrestricted prepayment penalties could be passed down to tenants in the form of higher rents, exacerbating housing affordability issues.
Still allows lenders to charge prepayment penalties to owner-occupiers for up to five years, which could trap low-income homeowners in unfavorable mortgages and prevent them from refinancing to better rates.

For Conservatives

Increases freedom for financial institutions to structure loan agreements and prepayment penalties with real estate investors and non-owner-occupying landlords without government interference.
Ensures that any government restrictions on prepayment penalties are strictly limited to owner-occupied homes, reducing broad regulatory burdens on the mortgage industry.
Promotes personal responsibility by enforcing written contracts and requiring borrowers to formally consent to the terms of their mortgage agreements.
Continues to impose government mandates on private mortgage contracts by capping prepayment penalties at 60 months for owner-occupied properties.
Burdens lenders with strict regulatory compliance, requiring them to prominently disclose terms and offer alternative mortgage products without prepayment penalties.
Restricts the free market by capping prepayment penalties at two percent during the first year for standard owner-occupied mortgage loans.

Votes

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Full Bill Text

2 versions

Changes to existing Rhode Island law · 8 additions

SECTION 1. Section 34-23-5 of the General Laws in Chapter 34-23 entitled "Mortgages of Real Property" is hereby amended to read as follows: 34-23-5. Prepayment of mortgage loans.

(a) Every bank, trust company, loan company, building-loan association, credit union, finance company and other person(s) making a loan or loans secured by a mortgage or mortgages on real estate located in Rhode Island containing thereon dwelling houses of not more than four (4) dwelling units shall provide in the mortgage note, and in any event the loan or loans shall be upon the condition that the full payment of mortgage may be made at any time after one year from the making of the loan without penalty, provided further, that during the first year, penalty or other charges for prepayment shall not exceed two percent (2%) of the balance due at date of the pay- off. If interest or other charges in connection with the loan or loans shall have been prepaid or included in the face of the mortgage, the holder thereof shall rebate the interest or other charges under regulations promulgated by the director of the department of business regulation.

(b) Alternatively a bank, trust company, loan company, building-loan association, credit union, finance company and other person(s) making a nonpurchase money loan or loans secured by a mortgage or mortgages on real estate located in Rhode Island containing on it dwelling houses of not more than four (4) dwelling units, may impose a prepayment penalty or other similar charges for the prepayment of a mortgage loan notwithstanding the prepayment penalty limitation imposed in subsection (a), but only if:

(1) The terms, conditions and amount of the prepayment penalty or other similar charges are prominently and conspicuously disclosed in writing to the borrower;

(2) The borrower agrees and consents to be bound by these terms and conditions; and

(3) Provided no prepayment penalty shall be imposed for any prepayment occurring more than sixty (60) months after the date of such loan.

(c) Any bank, trust company, loan company, building-loan association, credit union, finance company or other lender that chooses to offer a mortgage product pursuant to subsection

(b) shall have available a similar mortgage product that complies with the limitations set forth in subsection (a) and all applicable federal regulations.

(d) Any prepayment penalty imposed under this section shall not be construed as interest under the provisions of § 6-26-2.

(e) The limitations under this section shall only apply to mortgage loans made for real estate containing owner-occupied dwelling houses of not more than four (4) dwelling units only if:

(1) The terms, conditions and amount of the prepayment penalty or other similar charges are prominently and conspicuously disclosed in writing to the borrower;

(2) The borrower agrees and consents to be bound by these terms and conditions; and

(3) Provided no prepayment penalty shall be imposed for any prepayment occurring more than sixty (60) months after the date of such loan.

SECTION 2. This act shall take effect upon passage.