Prepayment Penalty Clause

A prepayment penalty is a charge imposed on a borrower who pays off the loan early. This clause states that the borrower cannot repay a loan prior to a specified date without paying a fee. This fee goes towards compensating the lender for interest and other charges that would otherwise be lost.

If your loan agreement doesn't have a prepayment clause, which excludes a fee for early termination, the penalty may apply. Many states prohibit prepayment.

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prepayment clause. Definition. A provision in a deed of trust or note that allows the borrower to pay off the principal before it is due, either all or in part, with or without a prepayment penalty. Print Cite / Link. Prepayment. on all the clauses.

Example recommended language: Prepayment penalty shall apply if the loan balance is prepaid in whole (100%) or in part (any prepayment of principal over the normal amortization.) In the example above, the borrower can make partial principal prepayments at any time, but the prepayment is subject to penalty.

Prepayment clause is a loan-document provision that permits a borrower to satisfy a debt before it is due date. It is a clause in a bond or mortgage that gives the borrower the privilege of paying the mortgage indebtedness before it becomes due. Usually, debt is satisfied without paying a penalty.

As another way to compensate for prepayment risk (which is a reinvestment risk), a prepayment penalty clause is often included in the loan contract. "Soft" prepayment terms can allow prepayment without penalty if the home is sold. "Hard" prepayment terms do not allow any exceptions without penalty.

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In determining the enforceability of prepayment fee provisions, courts. [p]rior to the mid-1980s, it was rare for the prepayment clauses in.

Mortgage holders seeking to pay off the loan principal early may incur a stiff penalty from their lender. These fees–called prepayment penalties–protect a lender.

By using the prepayment penalty and substitution and collateral clauses, you are more likely to have a big payday coming because you will have the flexibility.

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Mortgage lenders are required to provide prepayment penalty disclosures. Preemption Rules A prepayment penalty is a financial limitation placed on a mortgage limiting a borrower’s ability to prepay his loan earlier than specifically allowed under the terms of his agreement.

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