 |
Definition of 'Prepayment Penalty'
A clause in a mortgage contract that says if the mortgage is prepaid within a certain time period, a penalty will be assessed. The penalty is usually based on percentage of the remaining mortgage balance or a certain number of months worth of interest.
A prepayment penalty that applies to both the sale of a home and a refinancing transaction is called a “hard” prepayment penalty. A prepayment penalty that applies to refinancing only is called a “soft” prepayment penalty.
|
 |
Investopedia explains 'Prepayment Penalty'
Lenders write prepayment penalties into mortgage contracts to compensate for prepayment risk. As the incentive for a borrower to refinance a subprime mortgage is high, many subprime mortgages have prepayment penalties.
A borrower should be aware of the risks associated with a prepayment penalty. A prepayment penalty can substantially increase the cost of refinancing a mortgage when it would otherwise be economical.
|
-
Option adjustable rate mortgages could make or break your home-buying experience.
Read More »
-
These loans can spell disaster for borrowers, but that doesn't mean they should be condemned.
Read More »
-
Search and compare the best fixed and adjustable mortgage rates in your area with Bankrate.com.
Read More »
-
-
Find out how to determine whether refinancing will put you ahead or even more behind.
Read More »
-
In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
Read More »
-
We explain the calculation and payment process as well as the amortization schedule of home loans.
Read More »
-
Buying a home may be the biggest debt you'll ever incur. Learn why you should retire it sooner, rather than later.
Read More »
-
Not all student loans are the same. Know what you're getting into before signing on the dotted line.
Read More »
|
|
