Pre-payment Clause

Definition

• A provision in a loan agreement that stipulates the amount of principal a borrower can prepay ahead of schedule without penalty as well as the prepayment penalty for larger prepayments.

Synonyms
extra payment clause, prepayment cap, pre-payment options, mortgage pre-payment options, maximum mortgage prepayment

Alternate Spellings
Pre-payment Clause

Related Terms and Acronyms

• Additional Principal Payment — Definition,
  • Extra money included with a loan payment to pay off the amount owed faster. Over time, this practice reduces the amount of interest paid.
• Biweekly Accelerated Payment — Definition,
  • A mortgage that schedules payments every two weeks instead of the standard monthly payment. The 26 biweekly payments are each equal to one-half of the monthly payment. The result for the borrower is a substantial reduction in interest payments because the mortgage is paid off sooner.
• Blended Rate Mortgage — Definition, Important,
  • If a homeowner renews his or her mortgage early, the old and the new mortgage rates are blended together to split the difference between the interest rates.
• Closed Mortgage — Definition, Important,
  • Closed mortgages involve a strict repayment schedule of a specific amount with optional limited lump sum payments and payment increases.
• Down Payment — Definition,
  • The portion of the purchase price a buyer pays, in cash, at the time the loan originates.
• Interest Rate Differential (IRD) — Acronym, Very Important,
  • The penalty one pays for breaking a mortgage.
• Lump Sum Payment — Definition,
  • One-time single-sum payment or payout.
  • An extra payment made to reduce a loan.
• Mortgage (mtg) — Abbreviation, Important,
  • A mortgage is a contract stipulating a specific real property, typically a residence or building, as collateral for a loan. The mortgage incurs a rate of interest that varies according to term and other features.
• Penalty — Definition,
  • In mortgage terms, a penalty is a set rate or length of time the penalty will be charged based on the remaining loan amount. The penalty is usually three months interest or interest rate differential.
• Pre-payment — Definition,
  • Applying additional payments towards the balance of a mortgage loan.
• Pre-payment Penalty — Definition,
  • A lender's charge to the borrower for paying off the loan before the end of the term.