Unconsolidated Pennsylvania Statutes

INTEREST. (TITLE 41)

ARTICLE III. EXCEPTIONS TO MAXIMUM LAWFUL INTEREST RATE

§ 301. Residential mortgage interest rates.
§ 302. Federally guaranteed loans.
§ 303. Commitments to enter into residential mortgages.

§ 301. Residential mortgage interest rates.

(a) The General Assembly hereby finds it is necessary and appropriate to establish a flexible maximum lawful interest rate for residential mortgages, as defined in this act, and further finds that the Monthly Index of Long Term United States Government Bond Yields is the appropriate basis on which such a maximum rate of interest may be established.

(b) The maximum lawful rate of interest for residential mortgages, as defined in this act, entered into or contracted for during any calendar month 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.

(c) On or before the twentieth day of each month, the Secretary of Banking (i) shall determine, based on available statistics, the Monthly Index of Long Term United States Government Bond Yields for the preceding calendar month; and (ii) shall determine the maximum lawful rate of interest for residential mortgages for the next succeeding month, as defined in subsection (b) of this section, and shall cause such maximum lawful rate of interest to be filed with the Legislative Reference Bureau of publication in the Pennsylvania Bulletin; such maximum lawful rate of interest to be effective on the first day of the next succeeding month.

(d) The loan yield obtained by a residential mortgage lender from the residential mortgage debtor shall not exceed the maximum lawful rate of interest for residential mortgages established in section 301(b). A contract rate within the maximum lawful interest rate applicable to a residential mortgage at the time of the loan settlement shall be the maximum lawful interest rate for the term of the residential mortgage, except variable interest rate mortgages as set forth in section 301(e).

(e) In all proceedings and in all legal actions, the maximum lawful rate of interest for all residential mortgages, as defined in this act, as published in the Pennsylvania Bulletin by the Secretary of Banking shall be the maximum lawful rate of interest for residential mortgages, as defined in this act, except that variable interest rate mortgages may be written provided no increase in interest provided for in any provision for a variable interest rate contained in a security document, or evidence of debt issued in connection therewith shall be lawful unless such provision is set forth in such security document, or in any evidence of debt issued in connection therewith, or both, and such document or documents contain the following provisions:

1. That the index for determining increase or decrease in interest rate shall be the lawful rate of interest as determined under subsections (a), (b) and (c) for residential mortgages.
2. A requirement that when an increase in the interest rate is required by a movement in a particular direction of the prescribed standard an identical decrease is required in the interest rate by a movement in the opposite direction of the prescribed standard.
3. The rate of interest shall change not more often than once during any semiannual period and at least six months shall elapse between any two such changes.
4. The change in the interest rate shall be one-fourth of one per cent in any semiannual period, and shall not result in a rate more or less than two and five-tenths percentage points greater or less than the rate for the first loan payment due after the closing of the loan.
5. The rate of interest shall not change during the first annual period of the loan.
6. Subject to the provisions of paragraphs (3), (4) and (5), an increase or decrease in the interest rate shall be effected when the index moves in such percentage that the difference between the present indx rate and present mortgage rate varies not less than one-fourth of a percentage point from the difference between the index and mortgage rates at the date of the first contracted loan repayment.
7. The contracted periodic payment may at the option of the borrower be increased or decreased in dollar amount equal to any periodic increase or decrease in interest requirement, or the contracted periodic payment may at the option of the borrower be retained constant provided the maturity of the mortgage is not extended beyond forty years from the date of said mortgage or five years beyond the original maturity date for which said mortgage was written, whichever is the shorter.
8. When a change in the interest rate is required or permitted by a movement in the prescribed index, the lender shall give notice to the borrower by mail, addressed to the borrower's last known post office address, not less than thirty days prior to any change in interest rate, which notice shall clearly and concisely disclose:

   (i) the effective date of the interest rate change;
   (ii) the interest rate change, and if an increase, the extent to which the increased rate will exceed the rate in effect immediately before the increase;
   (iii) the changes in the index which caused the interest rate change;
   (iv) the amount of the borrower's contractual monthly principal and interest payments before and after the effective date of the change in the interest rate, any change in the term of the mortgage and any option that the mortgage debtor may have to extend or reduce the mortgage term and retain constant periodic payments.

9. A statement attached to the mortgage and to any evidence of debt issued in connection therewith printed or written in a size equal to at least 10-point bold type, consisting of the following language:
   
   

   Notice to borrower: This document contains provisions for a variable interest rate.

   
   
10. No residential mortgage lender may take a residential mortgage providing for a variable interest rate unless it has clearly and conspicuously disclosed to the mortgage debtor in the mortgage application:

    (i) That the mortgage rate is subject to change in the future.
    (ii) An explanation of the effect of changes in the index on the rate and term of the mortgage.
    (iii) An explanation of the index.
    (iv) A statement in 10-point bold type containing the following language:

    if the mortgage lender offers to give you a mortgage with a variable interest rate, you are entitled by law to also be offered a mortgage with an interest rate which will not change. By law, this fixed interest rate mortgage must be offered to you at reasonably competitive terms and rate.

11. The secretary of banking may by regulation prescribe language and forms which shall be deemed to comply with these disclosure requirements with the exception of the language contained in subsection e(9) and 10(iv).

(f) The maximum lawful rate of interest set forth in this section and in Article II of this act shall not apply to (I) an obligation to pay a sum of money in an original bona fide principal amount of more than fifty thousand dollars ($50,000); (ii) an obligation to pay a sum of money in an original bona fide principal amount of fifty thousand dollars ($50,000) or less, evidenced by a security document and secured by a lien upon real property, other than residential real property as defined in this act; (iii) to a loan to a person subject to the act of April 27, 1927 (P.L. 404, No. 260), entitled "An act prohibiting corporations from pleading usury as a defense," section 313 of the act of May 5, 1933 (P.L. 364, No. 106), known as the "Business Corporation Law," or Title 15 Pa.C.S. Section 7544; or (iv) an unsecured, noncollateralized loan in excess of thirty-five thousand dollars ($35,000); or (v) business loans the principal amount of which is in excess of ten thousand dollars ($10,000).

§ 302. Federally guaranteed loans.

The maximum lawful rate of interest prescribed in sections 201 and 301 of this act shall not apply to any loan insured or guaranteed in whole or in part by the Federal Housing Administration, the Veterans Administration or any other department or agency of the United States Government: Provided, That any such loan is subject to a maximum rate of interest established by law or by such department or agency.

§ 303. Commitments to enter into residential mortgages.

A residential mortgage commitment which provides for consummation within some future time following the issuance of the mortgage commitment may be consummated pursuant to the provisions, including interest rate, of such commitment notwithstanding the fact that the maximum lawful rate of interest at the time the residential mortgage is entered into is less than the commitment rate of interest, provided:

1. The commitment rate of interest does not exceed the maximum lawful interest rate in effect on the date the mortgage commitment was issued;
2. The mortgage commitment when agreed to by the borrower shall consitute a legally binding obligation on the part of the residential mortgage lender to make a residential mortgage loan within a specified time period in the future at a rate of interest not exceeding the maximum lawful rate of interest effective as of the date of commitment offer.

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