West Virginia Mortgage Law Practice Test

Prepayment penalties are:

1. Limited to variable-rate mortgages

2. Prohibited for all mortgage types

3. Only permitted for fixed-rate qualified mortgages

4. Permitted for all mortgage types

The correct answer is: Limited to variable-rate mortgages

Prepayment penalties are charges that mortgage borrowers pay when paying off all or part of their mortgage early. They are typically used to recoup interest that a lender would have otherwise earned if the borrower made payments according to the original schedule. Prepayment penalties can be detrimental to the borrower as they incur additional costs, so they should be considered carefully when choosing a mortgage. Option B is incorrect because prepayment penalties are not prohibited for all mortgage types. Option C is incorrect because prepayment penalties can also be attached to variable-rate qualified mortgages. Option D is also incorrect because prepayment penalties are not permitted for all mortgage types, as they can be limited or prohibited in certain situations. Therefore, A is the correct answer as it states that prepayment penalties are limited to variable-rate mortgages.