Is your mortgage interest rate legal?
For most people the answer is yes, but even in 2017 I still come across clients with usurious (and illegal) mortgage interest rates. If your residential mortgage interest rate is several points above prime, keep reading!
Pennsylvania’s Loan Interest and Protection Law
Pennsylvania’s Loan Interest and Protection Law, 41 P.S. 101, et, seq., establishes a ceiling on interest rates for residential mortgage loans in Pennsylvania. To fall under the protections of this law, your mortgage loan must meet several criteria. First, the loan must be considered a “residential mortgage”. A “residential mortgage” is defined by the law as follows:
“Residential mortgage” means an obligation to pay a sum of money in an original bona fide principal amount of the base figure or less, evidenced by a security document and secured by a lien upon real property located within this Commonwealth containing two or fewer residential units or on which two or fewer residential units are to be constructed and shall include such an obligation on a residential condominium unit.
The definition can basically be distilled down to two requirements: 1) the property is a one or two-family residential home or condominium, and 2) the original principal amount of the mortgage is less than the “base figure”. What is the base figure? It is an amount adjusted annually by the Pennsylvania Department of Banking and published in the Pennsylvania Bulletin. For 2017, this amount is $244,856.00.
Finally, loans insured by the Federal Housing Administration, Veterans Administration, or other United States government agency are exempt from this law, provided that the mortgage is subject to a maximum interest rate established by that agency. So if you have an FHA or VA loan, then the Pennsylvania interest rate cap does not apply; however, the interest rate caps established by the Department of Housing and Urban Development do apply.
So what is the maximum interest rate?
Assuming your loan falls under the protections of Pennsylvania law, then the maximum interest rate “shall be equal to the Monthly Index of Long Term United States Government Bond Yields for the second preceding calendar month plus an additional two and one-half per cent per annum rounded off to the nearest quarter of one per cent per annum.” To simplify things, the maximum rate is published monthly by the Department of Banking in the Pennsylvania Bulletin.
What happens if my rate is usurious?
If you have been charged usurious mortgage interest, the law provides you with some relief. First, the law states that you do not have to pay the excess interest, provided that you give proper notice to your mortgage lender. Second, you are entitled to sue your lender and recover up to triple the excessive interest. The recovery of triple interest is limited, however, to a four year period. So if you have been paying excessive interest for more than four years, your recovery may be limited. Finally, you are entitled to an award of reasonable attorney’s fees.
Do you think you have been the victim of a mortgage lender? Call The Mays Law Firm PC today (215) 792-4321, for a free consultation.
