Curtailment: Definition, Examples in Business & Mortgage Banking

What Is Curtailment?

Curtailment is the act of restricting or reducing something or cutting it short. The word is often used in business announcements and has several uses in the mortgage industry:

• A mortgage loan may be satisfied by curtailment when the homeowner pays off the balance ahead of schedule.
• Principal curtailment of a mortgage occurs when a borrower makes an extra payment against the principal owed in order to reduce the outstanding balance. This is sometimes called a partial curtailment.
• A total mortgage curtailment has occurred when the balance of the loan is paid off with a lump sum ahead of schedule.

Understanding Curtailment

The word curtailment can be applied to a deliberate restriction or reduction placed on any activity, and it has become common usage in referring to business operations.

A company may impose a curtailment on production in response to short-term market conditions. This is particularly common in the oil and gas industry, which has to respond quickly to changes in supply and demand.

A company may opt for a curtailment of some of its business activities in response to financial troubles. This may involve shutting down some parts of its operation temporarily or permanently in order to concentrate on the core business.

The word curtailment is also commonly used by energy companies to describe a reduction in deliveries to customers due to a temporary shortage of supplies.

A number of recent news stories have been related to announced curtailments, including the following:

• California's State Water Resources Control Board issued an "emergency curtailment order" in August 2021 prohibiting the use of water from most of the state's rivers for an indefinite period of time due to drought conditions.
• Canfor, a lumber company, announced a planned curtailment of production capacity at its Canadian sawmills during the third quarter of 2021 due to supply chain challenges and extreme wildfire conditions.
• The government of India announced delays in a zoological study of the subcontinent due to a "curtailment of funds" for the project during the COVID-19 pandemic.

Despite its common use to describe business cutbacks and power restrictions, consumers are most likely to come across the word curtailment in the fine print in mortgage paperwork.

In that context, at least, a curtailment is always a good outcome for the consumer.