Prepayment & Prepayment Penalty
Paying off a loan before maturity and potential fees for doing so.
Detailed Description
Prepayment & Prepayment Penalty
What is prepayment?
Prepayment is the act of paying off a loan or mortgage before the scheduled due date.
What are the types of prepayment?
The two types of prepayment are voluntary and involuntary.
What is a prepayment penalty?
A prepayment penalty is a fee imposed by lenders on borrowers who pay off their loans early.
Why do lenders impose prepayment penalties?
Lenders impose prepayment penalties to ensure a minimum return on the loan and discourage frequent refinancing.
How can borrowers avoid prepayment penalties?
Borrowers can avoid prepayment penalties by seeking loans without them, negotiating terms, and reviewing loan documents carefully.