Under what condition may a lender charge prepayment penalties according to New Jersey laws?

In New Jersey, lenders are permitted to charge prepayment penalties only when it is expressly stated in the loan agreement. This means that if a borrower agrees to a loan that includes a prepayment penalty, it must be clearly outlined in the terms of the mortgage contract. This requirement ensures that borrowers are fully informed about any potential penalties they may face if they decide to pay off their loan early.

The significance of this provision lies in its intention to foster transparency in lending practices, allowing borrowers to make informed decisions. If the prepayment penalty is not specified in the agreement, the lender cannot impose it, which protects borrowers from unexpected costs associated with paying off their mortgage early.

Other options fail to reflect the precise regulations governing prepayment penalties in New Jersey. While some types of mortgages may have different conditions regarding penalties, the essential element is that prepayment penalties must be stated in the loan agreement to be enforceable. Therefore, the accurate understanding of New Jersey laws is that clarity in the contract is paramount for the legitimacy of any prepayment penalty.