West Virginia Mortgage Law Practice Test

When a prepayment penalty is permitted, West Virginia law limits the penalty to no more than ______ of the loan amount within the first _______ year(s).

1. 1%; one year

2. 1%; three years

3. 3%; one year

4. 3%; three years

The correct answer is: 1%; one year

The correct answer indicates that when a prepayment penalty is allowed within the context of West Virginia law, the penalty is capped at 1% of the loan amount if the prepayment occurs within the first year. This is important because the law is designed to protect consumers from excessive fees that could hinder their ability to pay off a loan early. By setting a limit, it ensures that borrowers have a degree of flexibility and fairness in managing their mortgages. Understanding the limits imposed reflects the state's efforts to balance the interests of both lenders and borrowers, allowing lenders to recoup some costs associated with the early payoff while still providing reasonable protection to borrowers. The specified time frame of one year aligns with practices aimed at providing clarity and predictability in the loan agreement. Other options suggest higher penalties or longer time frames that do not align with current legislative limits, which are specifically articulated in West Virginia's mortgage laws.