Q. We recently sold our house, and found to our dismay that our mortgage lender was hitting us with a steep prepayment penalty. We tried to negotiate this penalty down, but without success.

What is a prepayment penalty, and are there any restrictions on the amount of the prepayment?

A. Your promissory note controls the answer, and the new consumer protection laws in this area may not help you. When a mortgage lender makes you a loan for a period of years, say 20 or 30, they have the contractual right to have their money earning the agreed-upon interest for the entire period of the loan. Historically, unless there is an agreement providing for a prepayment - with or without a penalty - the borrower (mortgagor) has no right at all to prepay the loan prior to the termination of the term.

In most modern mortgage instruments, usually called deeds of trust, there is language permitting the borrower the right to prepay the mortgage debt. This is known as a prepayment privilege. All savings and loan associations covered under federal Law must specifically state the penalty, or you are entitled to prepay without penalty.

You must look carefully at the mortgage document, to determine your rights. For example, your lender may permit you to prepay the note in whole or part without any penalty at all. On the other hand, many lenders want some form of a penalty, usually a percentage of the amount prepaid.

Because of the confusion and contradictions in the various state laws, it is not possible to generalize on whether you are permitted to prepay your mortgage without penalty. In Maryland, for example, if you are paying more than 8 per cent interest, there can be no prepayment penalty. In the District of Columbia, the law permits the lender to charge a prepayment penalty, on all loans over 8 per cent, for a maximum of three years. After the expiration of three years, you cannot be charged a prepayment penalty. The penalty, together with the interest rate on your mortgage, cannot exceed 10 per cent simple annual interest. In Virginia, prepayment penalties of up to 2 per cent occupied by the borrower.

Benny L. Kass is a Washington attorney. Send your questions to him to the Real Estate section. The Washington Post, 1150 15th St. NW, Washington, 20071.