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 consumer protection laws in this area may not help you. When mortgage lenders make you a loan for a period of years, say 20 to 30, they have the contractural 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 mortgaged debt. This is known as a prepayment privilege. All savings and loan associations covered under federal law must take specifically the penalty, or you are entitled to prepay without penalty.

You must look carefully at the mortgage documents to determine your rights. For example, your lender may permit you to prepay the note in whole or in 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 Mayland, for example, if you are paying more than 8 percent interest, there can be no prepayment penalty.

In the District, the law permits the lender to charge a prepayment penalty on all loans over 8 percent of 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 percent simple annual interest.

In Virginia, prepayment penalties of up to 2 percent may be charged if the loan is secured by a home occupied by the borrower, unless the loan is less than $75,000, where the maximum penatly is 1 percent.

With the shorter-term mortgages presently being offered by lenders, such as the adjustable-rate mortgage loan, any savings and loan association offering such mortgages must permit the borrower to prepay the loan in full or in part without penalty at any time during the loan term.