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 amount 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.

Key Takeaways

  • A curtailment is a restriction imposed on any activity, temporary or permanent.
  • The word is used to describe many business activities, particularly reductions in production and limits on energy output or delivery.
  • A curtailment of a mortgage means pre-paying part of the principal or paying off the entire loan earlier than scheduled.

Understanding Curtailment

The word curtailment can be applied to a deliberate restriction or reduction placed on any activity, but it has made its way into a variety of uses related 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 on 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.

A mortgage loan has been satisfied by curtailment when the balance is paid off ahead of schedule.

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:

  • Stanford University announced and then lifted a curtailment of chilled water availability in a number of campus buildings in June 2019 in order to preserve cooling capacity for essential medical, research, and computing facilities during a heatwave.
  • A number of paper mills in British Columbia announced curtailments of production in mid-2019 due to weak conditions in the paper market.
  • In India, a local newspaper reported that the government-run Power Development Department was "reduced to a laughing stock" when a heatwave wrecked its promise to provide a "curtailment-free" electricity supply to its customers in several cities.

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.