prepayment clause

Prepayment Privilege

The right of a borrower to repay a debt in full before it is due. The prepayment privilege is favorable to the borrower because it relieves him/her of the debt, but it deprives the lender of interest that he/she would have received otherwise. However, some lenders offer the prepayment privilege to encourage potential borrowers to borrow from them instead of their competitors.

prepayment clause

A loan provision allowing the borrower to pay the loan in full before the maturity date without penalty, or to make principal reductions faster than originally envisioned by the parties. Consumer mortgages all have prepayment clauses. Large, commercial loans typically prohibit prepayment.

References in periodicals archive ?
The new agreement has a mandatory prepayment clause in case the company shall have a a cash position exceeding USD5m in 2009 and 2010, and USD7m in 2011 until maturity.
The interest coverage test was eliminated, the total leverage ratio test was changed to a net senior leverage ratio test, and the mandatory prepayment clause was waived for fiscal 2006.
and a new mandatory prepayment clause that requires Marsh to repay the drawn $1 billion term loan with 75% of net proceeds from new debt issues and assets sales.
Recent decisions relating to prepayment clauses, including EFH and Momentive
Many consumers aren't familiar with prepayment clauses.
Though some California banks have included prepayment clauses with rate discounts on adjustable-rate mortgages for several years, virtually no major lenders in the country routinely have marketed them with fixed-rate mortgages.
Bank of America, San Francisco, interestingly the pioneer of conventional mortgage-backed securities in 1977, has been a leader in experimenting with prepayment clauses to enhance its portfolio return.