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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson

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.

The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.
References in periodicals archive ?
The Company's spread and margin have been significantly impacted by prepayment penalties. Due to this situation, the chart above details results with and without the impact of prepayment penalties.
The Federal Reserve issued regulations during 2008 to restrict prepayment penalties on adjustable-rate loans, and the Dodd-Frank financial reform bill included similar provisions for adjustable- and high-interest-rate loans.
Prepayment penalties: The act prohibits prepayment penalties within loans that are "not qualified mortgages." It further restricts prepayment penalties to loans that are not adjustable and do not have an annual percentage rate (APR) exceeding the average prime offer rate (APOR) (meaning the average prime offer rate for a comparable transaction as of the date on which the interest rate for the transaction is set, as published by the Federal Reserve Bank) by 1.5 or more percentage points for first-lien loans, 2.5 or more percentage points for jumbo loans or 3.5 or more percentage points for subordinate-lien loans.
Prepayment penalties. The prepayment penalty provision originally allowed a penalty during the first five years following consummation of the loan.
They show that prepayment penalties are welfare improving, and are more beneficial to borrowers with higher risk of default.
Excessive prepayment penalties often trap consumers in mortgages they cannot afford, leaving homeowners with no choice but to face foreclosure.
Prepayment penalties were a contract feature of a significant percentage of the loan defaults in the subprime mortgage market.
Furthermore, lenders of subprime loans have increased their use of mechanisms such as prepayment penalties and large down payments to, respectively, increase the duration of loans and mitigate losses from defaulted loans.
Graduates can apply easily over the telephone or online, and, pay no prepayment penalties.
In calling for an end to the prepayment penalties for hurricane victims, ACORN pointed out that other lenders and service providers have routinely waved prepayment penalties for homeowners who are paying off the mortgages of their damaged homes through insurance settlements or other means.
Representatives Bob Ney (R-Ohio) and Mike Ross (D-Ark.) offered an amendment to repeal the mortgage prepayment penalties on the Section 515 Low-income Rural Rental Housing program.
With a low annual percentage rate (APR) of 7.9 percent, the loan has no application fees or prepayment penalties, and no collateral is required.