Virginia Code 6.2-423: Prepayment of loans secured by certain subordinate mortgages or deeds of trust; rebates for unearned interest.
A. Any borrower under any loan secured by a subordinate mortgage or deed of trust on residential real estate, which loan is subject to the provisions of § 6.2-327, shall have the right to anticipate payment of his debt in whole or in part at any time. If agreed to by the borrower, a lender may contract for a penalty for prepayment of the full amount of the loan if the prepayment penalty shall not exceed two percent of the principal amount prepaid, but no prepayment penalty shall be imposed if:
Terms Used In Virginia Code 6.2-423
- Amortization: Paying off a loan by regular installments.
- Contract: A legal written agreement that becomes binding when signed.
- Deed: The legal instrument used to transfer title in real property from one person to another.
- Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
- Open-end credit: A credit agreement (typically a credit card) that allows a customer to borrow against a preapproved credit line when purchasing goods and services. The borrower is only billed for the amount that is actually borrowed plus any interest due. (Also called a charge account or revolving credit.) Source: OCC
- real estate: includes lands, tenements and hereditaments, and all rights and appurtenances thereto and interests therein, other than a chattel interest. See Virginia Code 1-219
1. The loan is refinanced or consolidated with the same lender or a subsequent noteholder;
2. The loan is accelerated due to default;
3. A partial prepayment is made; or
4. In the case of an open-end credit plan, as defined in § 6.2-300, where there is a payment of the outstanding balance without a demand to release the subordinate deed of trust or mortgage.
B. If interest has been added to the face amount of a note payable in installments, the borrower shall have the right to a rebate of any unearned interest. On loans with an initial maturity and corresponding amortization period of 61 or fewer months that are payable in equal periodic installments, the rebate shall be computed in accordance with the Rule of 78 as illustrated in § 6.2-403. On loans with an initial maturity of more than 61 months, the rebate shall be computed under a method at least as favorable to the borrower as the actuarial method.
C. The provisions of this section shall not apply to any loan made by (i) a bank, savings institution, industrial loan association, or credit union or (ii) a seller in a real estate sales transaction who takes a subordinate mortgage or deed of trust on such real estate.
1987, c. 622, § 6.1-330.85; 1990, c. 338; 1991, c. 171; 1998, c. 89; 2010, c. 794.