Prepayment Loans

Mortgages Prepayments | Prepayment Loans | Definition

A payment made in excess of scheduled mortgage principal repayments. Prepayments affect not only borrowers and lenders but also investors in real estate securities. Important concepts in this area include:

Prepayment Clause
A clause in a mortgage permitting the mortgagor to pay all or part of the unpaid balance before it becomes due, thereby saving the interest or clearing the way for a new mortgage.

Prepayment Penalty
A penalty imposed upon a mortgagor for paying the mortgage before it becomes due, when there is no prepayment clause.

Prepayment Speed
The estimated rate at which mortgagors pay off their loans ahead of schedule. This rate is critical in assessing the value of mortgage pass-through securities. Also called speed.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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