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S3073aaReal Estate

Property - Mortgages of Real Property

This bill limits mortgage prepayment penalty protections and disclosure requirements to owner-occupied properties with up to four dwelling units.

Introduced70 Yea0 Nay5 Not voting
Population
Affected
28
Email Legislator
Introduced Mar 13, 2026Committee Senate Commerce

Plain-English Summary

This bill updates 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 will now only apply to properties that are owner-occupied. Lenders must prominently disclose the terms and amount of any prepayment penalty in writing, and the borrower must agree to them. Additionally, the bill prohibits lenders from imposing any prepayment penalty more than 60 months (5 years) after the date the loan was issued.

For younger readers

When people borrow money from a bank to buy a house, it is called a mortgage. Sometimes banks charge a fee, called a penalty, if the person pays back the borrowed money too early. This bill changes the rules for those fees. It says that the rules limiting these fees only apply to houses where the owner actually lives in the house, up to a four-family home. The bank has to tell the borrower exactly what the fee is ahead of time, and they cannot charge this early fee if the loan is more than five years old.

Who & Where It Applies

Impacted groups
HomeownersReal estate investorsBanks and credit unionsMortgage lendersLandlords
Impacted communities
All

Constitutional & Fiscal Check

None Likely

Estimated cost
None
Estimated revenue
None

Bill Analysis

Both viewpoints
For Progressives
  • Ensures that working-class homeowners who live in their properties maintain strong consumer protections against predatory prepayment penalties.
  • Requires lenders to prominently and conspicuously disclose prepayment penalty terms in writing, increasing transparency and preventing hidden fees for borrowers.
  • Strictly prohibits any prepayment penalties from being charged after 60 months, protecting long-term homeowners from unfair financial burdens when refinancing or selling.
  • Removes prepayment penalty protections for non-owner-occupied properties, which could negatively impact small-time landlords and potentially lead to higher rents for tenants.
  • Allows lenders to charge prepayment penalties up to five years into the loan, which can trap lower-income homeowners in unfavorable loans or prevent them from refinancing to lower rates.
  • Focuses heavily on protecting owner-occupiers but leaves out protections for multi-family affordable housing developers who rely on one-to-four unit investment properties.
For Conservatives
  • Removes government restrictions on prepayment penalties for non-owner-occupied investment properties, allowing the free market to dictate loan terms for real estate investors.
  • Protects the freedom of contract by ensuring that borrowers and lenders can agree to customized loan terms, provided the borrower explicitly consents to the conditions.
  • Provides legal clarity for financial institutions by explicitly stating that prepayment penalties shall not be construed as interest, protecting lenders from potential usury claims.
  • Continues to impose government interference and regulations on private mortgage contracts for owner-occupied properties, restricting the freedom of lenders to set their own terms.
  • Imposes strict disclosure mandates on lenders, increasing the regulatory and compliance burden on banks, credit unions, and finance companies.
  • Creates an arbitrary 60-month government-mandated limit on when a prepayment penalty can be applied, overriding the ability of private parties to negotiate longer penalty periods.

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.