- A provision in a loan agreement that stipulates the amount of principal a borrower can prepay ahead of schedule without penalty as well as the prepayment penalty for larger prepayments.
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Related Terms and Acronyms
- Additional Principal Payment — Definition,
- Extra money included with a loan payment to pay off the amount owed faster. Over time, this practice reduces the amount of interest paid.
- Biweekly Accelerated Payment — Definition,
- A mortgage that schedules payments every two weeks instead of the standard monthly payment. The 26 biweekly payments are each equal to one-half of the monthly payment. The result for the borrower is a substantial reduction in interest payments because the mortgage is paid off sooner.
- Blended Rate Mortgage — Definition, Important,
- If a homeowner renews his or her mortgage early, the old and the new mortgage rates are blended together to split the difference between the interest rates.
- Closed Mortgage — Definition, Important,
- Closed mortgages involve a strict repayment schedule of a specific amount with optional limited lump sum payments and payment increases.
- Down Payment — Definition,
- The portion of the purchase price a buyer pays, in cash, at the time the loan originates.
- Interest Rate Differential (IRD) — Acronym, Very Important,
- The penalty one pays for breaking a mortgage.
- Lump Sum Payment — Definition,
- One-time single-sum payment or payout.
- An extra payment made to reduce a loan.
- Mortgage (mtg) — Abbreviation, Important,
- A mortgage is a contract stipulating a specific real property, typically a residence or building, as collateral for a loan. The mortgage incurs a rate of interest that varies according to term and other features.
- Penalty — Definition,
- In mortgage terms, a penalty is a set rate or length of time the penalty will be charged based on the remaining loan amount. The penalty is usually three months interest or interest rate differential.
- Pre-payment — Definition,
- Applying additional payments towards the balance of a mortgage loan.
- Pre-payment Penalty — Definition,
- A lender's charge to the borrower for paying off the loan before the end of the term.