ARM Contract Override State Law?

Is there such a thing as a law that prevents paying pre-payment penalties on an adjustable rate mortgage?

QUESTION: Carrie and her husband have an ARM (adjustable rate mortgage).  The contract with the mortgage company said there are pre-payment penalties, but Wisconsin has a law against charging pre-payment penalties.  Can a contract override the state law?

ANSWER: Some states have a prohibition to pre-payment penalties on mortgages.  A contract does not override state law.  If the state law prohibits pre-payment penalties, then you won’t have to pay the penalties – even if you signed a contract that says you do.

Call the Department of Commerce for your state to find out if your state prohibits pre-payment penalties.