What is the "prepayment penalty" in a QM context?

A prepayment penalty in the context of Qualified Mortgages (QM) refers to a fee that borrowers must pay if they choose to pay off their mortgage loan before the scheduled maturity date. This penalty is designed to compensate the lender for the potential loss of interest income that would occur when a borrower pays off their loan early.

In a QM setting, prepayment penalties are generally restricted to ensure that they are not excessively burdensome to consumers. The rules aim to protect borrowers by limiting the instances in which such fees can be applied, and by ensuring that they are only included in certain types of loans. In this manner, the option identified accurately reflects the purpose and nature of a prepayment penalty within QM regulations.

Other options suggest different interpretations of fees and penalties associated with loans, such as refinancing fees or costs tied to late payments, which do not pertain to the concept of prepayment penalties as defined by QM standards.