pre-payment clause 1. It is a clause in a bond or mortgage that gives the borrower the privilege of paying the mortgage indebtedness before it becomes due. A prepayment penalty is a charge that the lender imposes on the borrower if the borrower pays all or part of the loan principal before its due date. The CFPB rules prohibit prepayment penalties for most residential mortgage loans, except under a few specific circumstances. Prepayment Privilege The right of a borrower to repay a debt in full before it is due. Definition of "Prepayment of loan clause" Alicia Kurvin, Real Estate Agent Kurvin Residential Provision permitting a lender to charge the borrower a penalty for repaying a loan before its due date. A provision in a promissory note stating the amount a borrower may repay ahead of schedule without incurring a penalty. Prepayment Clause Law and Legal Definition Prepayment clause is a loan-document provision that permits a borrower to satisfy a debt before it is due date. What Is a Prepayment Penalty? In Florida, a borrower has the right to prepay his or her mortgage loan unless the mortgage instrument states otherwise. Not all lenders impose a prepayment penalty. From a mortgage lender’s perspective a prepayment penalty helps the lender at least recoup some or all of the significant expense it incurs in putting a new loan on the books. Prepayment clause Definition. Yield Maintenance: A prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity. Not all mortgages have a prepayment penalty. A prepayment clause allows the borrower to pay off part or all of the debt, without penalty or other fees, prior to maturity. A prepayment penalty is a fee that some lenders charge if you pay off all or part of your mortgage early. The prepayment privilege is favorable to the borrower because it relieves him/her of the debt, but it deprives the lender of interest that he/she would have received otherwise. Definition: a provision in a mortgage that allows the mortgagor to pay the mortgage debt ahead of time without penalty Pronunciation: \(ˌ)prē-ˈpā-mənt\ \ˈklȯz\ Used in a Sentence: Since we had a prepayment clause in our mortgage we were able to pay off our mortgage early without any penalty. Make sure a prepayment penalty clause doesn’t somehow manage to mysteriously creep into your mortgage before you sign the final loan documents. A prepayment clause is normally included in FHA and VA mortgages on real property. 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. If you have a prepayment penalty, you would have agreed to this when you closed on your home. A prepayment penalty is a charge the borrower pays when a mortgage is repaid before a certain period of time elapses.
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