Thanks...now I understand what this is. This is a standard form provision that is typically in lender documents. As long as you aren't paying any amounts to buy down your rate and as long as you specifically identify your extra payments as being designated specifically for principal reduction so that they don't get simply applied to any prepayment of interest, this provision will have no impact on you. Only if you had purchased the rate down (which is effectively prepayment of interest) or been deemed to have prepaid interest by not designating additional payments to be applied to principal would this provision have any impact on you. You have every right to make prepayments of principal without penalty under the following CA statute:
California Civil Code Section 2954.9
(a) (1) Except as otherwise provided by statute, where the
original principal obligation is a loan for residential property of
four units or less, the borrower under any note or evidence of
indebtedness secured by a deed of trust
or mortgage or any other lien
on real property
shall be entitled to prepay the whole or any part
of the balance due, together with accrued interest, at any time.
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