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Definition of Prepayment Penalty from Mortgage Glossary

Prepayment Penalty

Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

Prepayment Penalty makes refinancing less beneficial within a set time period, usually 3 or 5 years. Loans with prepayment penalties have lower interest rates in exchange for the added restriction.

Prepayment penalty helps the lender to recoup some or all of the expense it incurs in originating the loan. If the loan is to be refinanced shortly, the lender can incur a loss, as it has not had time to make up the costs it advanced.

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    Prepayment Penalty
    Prepayment Penalty Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states. Prepayment Penalty makes refinancing less beneficial within a set time period, usually 3 or 5 years. Loans with ... more...

    Prepayment
    Prepayment Full or partial payment of the principal before the due date. This might occur if the borrower makes extra payments, sells the property, or refinances the existing loan. ... more...


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