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 ?
While losing the ability to tweak cash flows to one's particular needs may inconvenience many borrowers and push some borrowers at the margin out of the market, economic theory suggests that prepayment penalties may be playing a more fundamental role in the functioning of subprime mortgage markets.
Thinking about this mechanism in this highly stylized form offers a new way of looking at the relationship between prepayment penalties and mortgage defaults.
In either case, prepayment penalties may enable mortgage markets to function properly for individuals who cannot qualify for prime credit based on their credit scores.
With prepayment penalties, Freddie Mac notes on its Web site, a borrower should be given the choice of including a prepayment penalty and should never be required to do so.
Cases of abusive prepayment penalties have raised awareness regarding predatory lending practices, leading to a rash of anti-predatory-lending regulations and new laws at the local, state and federal level.
Even with HOEPA and scores of local and state laws in place as protective measures, a few unscrupulous lenders still found ways to thwart their intent by engaging in such practices as abusive prepayment penalties.
Not pay sales personnel incentives to include prepayment penalties or any other fees or charges in the mortgages.
Provide full disclosure regarding interest rates, discount points, prepayment penalties, and other loan or refinancing terms.
Other income declined $261,000, due to lower loan referral fees and prepayment penalties on loans.
The notes are backed primarily by prepayment penalties and monthly excess spread not used to offset losses in the LBSBC, series 2005-2, transaction -- see Fitch press release 'Fitch Rates Lehman Brothers Small Balance Commercial, Series 2005-2,' dated Oct.
4 million for prepayment penalties and the write-off of unamortized deferred financing costs, which will be included in GAAP Net Income and FFO in the fourth quarter 2005.
The solution's review functions include: loan level lender and broker license reviews; state consumer credit laws relating to such terms as usury, fee restrictions, prepayment penalties, and late fees; Home Mortgage Disclosure Act; Office of Foreign Asset Control; and investor program requirements, such as an accurate Fannie Mae points and fees threshold test.