Prepayment (redirected from Prepayment penalties)

prepayment

A payment made before the day it is due. For example, sending a check on the transaction date for securities bought with regular-way delivery will almost surely result in prepayment.

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Prepayment

1. The payment of a debt in full before it is due. Prepayment is good for the borrower because it relieves him/her of the debt, but it deprives the lender of interest he/she would have received otherwise. As a result, some lenders attach prepayment penalties to loans to decrease the incentive of prepayments. Prepayment can be a major risk to collateralized mortgage obligations, as coupon payments are based on interest received from the underlying mortgages. See also: Prepayment risk.

2. Payment in advance for a good or service not yet received.

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Prepayment

A payment made by the borrower over and above the scheduled mortgage payment.

If the additional payment pays off the entire balance it is a “prepayment in full”; otherwise, it is a “partial prepayment.” See Partial Prepayments.