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 disincentivize prepayments. Prepayment can me a major risk to collateralized mortgage obligations as coupon payments are based on interest received from the underlying mortgages. Less commonly, this is called anticipation. See also: Prepayment risk.

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

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.

prepayment

or

payment in advance

an expense which is paid in one trading period but which is properly chargeable against the revenues or profits of future trading periods. For example, if a company preparing accounts for the year to 31 December pays its annual rent on 1 April, then only three quarters of that rent relates to the current trading period, the remaining quarter being a prepayment for use of the building from 1 January to 31 March in the next trading period. Prepayments are counted as part of the company's assets at the end of the trading period and are usually included as part of DEBTORS in the firm's BALANCE SHEET. See ACCRUAL.

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.

References in periodicals archive ?
The new HPM rules also include specific restrictions for prepayment penalties and repayment ability assessments based on the HOEPA rules and restrictions for escrow accounts and open-ended credit.
So prepayment penalties can be a valuable tool for borrowers who wish to pay lower monthly payments.
ACORN also demanded that Ocwen refund all prepayment penalties and other tees it has received from people living or working in the disaster area.
According to the requirements noted on Fannie Mae's Web site, Fannie Mae will only purchase loans that include prepayment penalties under the terms of a negotiated contract.
The loan, which has a one-year term with no prepayment penalties, includes a repair and interest reserve of $7.
Prepayment penalties in subprime loans are locking African-American families out of the prime mortgage market and rolling back hard-earned economic progress," said Hilary Shelton, Director of the NAACP Washington, DC Bureau.
As mentioned earlier, we have received no specific complaints by consumers since the beginning of 1991 about the use of the Rule of 78s in prepayments and very few complaints about prepayment penalties of any sort.
Policymakers have recognized the negative effects of prepayment penalties with more than 35 states regulating their use in home loans.
These fees can have a ruinous impact on a homeowner's equity, especially when combined with prepayment penalties on a loan.
Investment division same-store funds from operations decreased 12% for the quarter, and fell 5% for the six-month period, due primarily to higher write-offs of deferred borrowing costs and prepayment penalties related to refinancing.
What's worrisome is the high loan to value and adjustable rate piggyback first liens burdened with super-high revolving variable rate home equity line of credit seconds ("HELOC") (Calhoun, PhD) topped off with abusive prepayment penalties, running naked without mortgage insurance.