Re Sally Gunz's query:
 
Various respondents have mentioned some aspects of the contracts
question here involved.  Here's another fragment:  Federal and state
regulators either ban entirely or limit prepayment penalties in
RESIDENTIAL mortgages/trust deeds.  Re the feds, prepayment penalties
are not permitted in loans guaranteed by the Veterans Administration,
nor in those insured by the Federal Housing Administration.  These loans
may be  prepaid at any time without penalty.  Many states permit the
imposition of prepayment penalties, but impose time and/or amount
limits.  In California, for example, lenders taking mortgages/trust
deeds on residences of four units or less may impose a prepayment
penalty.  But the statute says the debtor may within a twelve-month
period prepay 20% of the unpaid balance free from the penalty, and the
maximum penalty on any amount in excess of the 20% is 6 months' interest
(on the excess prepayment).  The Uniform Consumer Credit Code also
imposes some outer limits.
 
Generally, as some respondents pointed out, there is no prepayment
privilege unless the mortgage contract provides for one.
 
This topic is a good one for illustrating to students the relationship
between regulation and contract law.  For a discussion of mortgage
prepayment, see NELSON AND WHITMAN, REAL ESTATE FINANCE LAW.  Similar
material can be found in several real estate laws books for
undergraduates.