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SB 3073

AN ACT RELATING TO PROPERTY -- MORTGAGES OF REAL PROPERTY

2026 Regular Session Introduced by Bob Britto and 1 co-sponsor

Rhode Island would cap early mortgage prepayment penalties on owner-occupied properties up to four units, allowing 2% in year one and a sunset higher-penalty option with disclosure

06/26/2026 Effective without Governor's signature
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Bill Summary · SB 3073

Summary of Bill SB 3073 (Rhode Island), 2026 Session

Title

AN ACT RELATING TO PROPERTY -- MORTGAGES OF REAL PROPERTY

Purpose and Intent

SB 3073 would limit the prepayment rules for certain mortgage loans secured by real estate in Rhode Island. Specifically, the bill establishes two tracks for prepayment terms and applies only to owner-occupied properties with up to four dwelling units. The overall aim appears to be standardizing and restricting prepayment penalties, ensuring borrower protections, and ensuring consistency with federal regulations.

Key Provisions

Section 34-23-5: Prepayment of Mortgage Loans

  1. Standard, Low-Prepayment Option (Subsection a)

    • Applies to lenders making loans secured by mortgages on Rhode Island real estate containing up to four dwelling units (including banks, trust companies, loan companies, building-loan associations, credit unions, finance companies, and similar lenders).
    • Mortgage notes must allow full repayment of the mortgage at any time after one year from the loan date without penalty.
    • In the first year, any prepayment penalties or charges may not exceed 2% of the loan balance due at the date of payoff.
    • If interest or other charges were prepaid or included in the mortgage’s face value, the lender must rebate those interest or charges in accordance with regulations issued by the Director of the Rhode Island Department of Business Regulation.

  2. Optional Premium Prepayment (Subsection b)

    • Lenders may offer a non-purchase-money loan with a prepayment penalty or similar charges that exceed the limitations in Subsection (a), but only if:
      • The terms, amount, and conditions of the prepayment penalty are clearly disclosed in writing to the borrower (prominent and conspicuous disclosure).
      • The borrower provides informed, written consent to these terms.
      • No prepayment penalty is imposed for any prepayment occurring more than 60 months after the loan date.

  3. Product Availability (Subsection c)

    • Lenders electing to offer the higher-penalty product under Subsection (b) must also offer a compliant product under Subsection (a) and must adhere to all applicable federal regulations.

  4. Characterization of Penalty (Subsection d)

    • Any prepayment penalty imposed is not to be construed as interest under Rhode Island law (specifically not as “interest” for purposes of § 6-26-2).

  5. Scope of Application (Subsection e)

    • The law’s prepayment limitations apply only to mortgage loans on owner-occupied real estate with up to four dwelling units.

Section 2: Effective Date

  • The act would take effect upon passage (i.e., immediately once signed into law).

Who is Affected

  • Lenders and lending institutions that issue mortgages on owner-occupied Rhode Island real estate with up to four dwelling units.
  • Borrowers financing properties in this category, particularly those seeking or negotiating prepayment terms.
  • The Rhode Island Department of Business Regulation, which would regulate the rebate of prepaid interest/charges per its rules.

Procedural and Timeline Aspects

  • Introduced: March 13, 2026
  • Referred to Senate Commerce
  • Committee actions indicate consideration for potential hold for further study (April 14, 2026) and scheduling for a later vote (April 28, 2026)
  • Effective date: upon passage

Practical Impact

  • Creates a clear, uniform right for borrowers to prepay a mortgage on small, owner-occupied properties after the first year with limited penalties (2% in year 1).
  • Provides a “menu” option for lenders to offer higher prepayment penalties, but only if:
    • The higher-penalty terms are clearly disclosed and consented to in writing, and
    • The higher penalties are capped by a 60-month sunset (no penalties after five years).
  • Ensures any prepayment charges are not classified as interest for regulatory purposes.
  • Maintains alignment with federal rules for lenders offering the alternative product.

Notes

  • The act explicitly limits its scope to owner-occupied properties with up to four dwelling units, excluding larger multi-unit or non-owner-occupied mortgages.
  • If enacted, lenders would need to adjust disclosures and product offerings to comply with both Subsection (a) and Subsection (b) options.

Compiled from official sources — confirm details with the bill’s official record.

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