Prepayment

What is a 'Prepayment'

A prepayment is the satisfaction of a debt or installment payment before its official due date. A prepayment can be for the entire balance or for any upcoming payment that is paid in advance of the date for which the borrower is contractually obligated to pay it. Examples of a prepayment come in the form of rent or early loan repayments.

BREAKING DOWN 'Prepayment'

There are many types of debts and obligations that can be settled in advance through prepayment. Consumers can use prepayments on tax forms to settle future tax obligations, they may prepay credit card charges before they receive a statement and sometimes many prepay loans through refinancing. It's always a good idea to make sure that prepayment is allowed without penalty for mortgages, or, if there is a penalty that it's only for a few years.

RELATED TERMS
  1. Prepayment Model

    A model used to estimate the level of prepayments on a loan portfolio ...
  2. Prepayment Penalty

    A clause in a mortgage contract that says if the mortgage is ...
  3. Public Securities Association Standard ...

    An assumed monthly rate of prepayment that is annualized to the ...
  4. Prepayment Privilege

    The right given to a debt holder to pay all or part of a debt ...
  5. Constant Percent Prepayment

    Annualized estimate of mortgage loan prepayments, computed by ...
  6. Single Monthly Mortality - SMM

    In mortgage-backed securities (MBSs), this is the percentage ...
Related Articles
  1. Bonds & Fixed Income

    The Risks Of Mortgage-Backed Securities

    Find out how weighted average life guards against prepayment risk.
  2. Professionals

    Mortgage-Backed Securities (MBS)

    CFA Level 1 - Mortgage-Backed Securities (MBS). Learn the process of creating and collateralizing mortgage-backed securities. Covers their expected cash flows and possible risks.
  3. Professionals

    Collateralized Mortgage Obligations (CMOs)

    FINRA Series 7 Online Study Guide Section 4
  4. Professionals

    Call and Prepayment Risk

    CFA Level 1 - Call and Prepayment Risk. Learn the sources of call and prepayment risk and why it can occur. Highlights the disadvantages of investing in prepayable or callable bonds.
  5. Investing

    3 Major Risks For Annaly’s Investors

    Thanks to its double-digit dividend yield, Annaly Capital Management has long been a favorite among income-seeking investors.
  6. Should You Pay Down Your Mortgage Early?

    At some point, you’ve probably heard the common wisdom that you should head into retirement without a mortgage to worry about. But the reality is that 40% of individuals who are between ...
  7. Options & Futures

    Defeasance Reduces Commercial Real Estate Fees

    Try this alternative to short-term variable-rate financing when using leverage to buy property.
  8. Professionals

    Mortgage-Backed Securities

    Mortgage-Backed Securities
  9. Bonds & Fixed Income

    Introduction To Asset-Backed And Mortgage-Backed Securities

    In this article, we will go through the structure, along with some examples of ABS and valuation.
  10. Retirement

    Analyzing The Best Retirement Plans And Investment Options: Bonds

    What they are: Debt securities in which you lend money to an issuer (such as a corporation or government) in exchange for interest payments and the future repayment of the bond’s face value. ...
RELATED FAQS
  1. Do prepayments provide working capital?

    Learn how prepayments for various services such as insurance, rent and supplies are included as part of a company's current ... Read Answer >>
  2. Do FHA loans have prepayment penalties?

    Learn whether FHA loans have prepayment penalties, and find out the rules governing interest charges when prepaying your ... Read Answer >>
  3. What is the difference between deferred revenue and accrued expense?

    Understand the differences between deferred revenue and accrued expenses. Learn how each is recognized on the balance sheet ... Read Answer >>
  4. What are the pros and cons of getting installment credit to pay off your revolving ...

    Learn how installment credit can be used to pay off revolving debt as well as the advantages and disadvantages for each type ... Read Answer >>
  5. How do prepaid expenses affect liquidity ratio calculations?

    Understand how prepaid expenses affect a company's liquidity ratio calculations. Learn about the most common types of liquidity ... Read Answer >>
  6. How are prepaid expenses recorded on an income statement?

    Understand how prepaid expenses are recorded on a company's financial statements. Learn why a prepaid expense would be considered ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center