What is Curtailment
Curtailment is the act of stopping or restricting something. It can be applied to aspects of the financial industry in several ways.
Curtailment can refer to actions taken on a mortgage loan. Curtailment actions shorten the life of the loan by paying off the balance ahead of schedule. Principal curtailment is when the borrower makes extra principal payments in an effort to reduce the outstanding principal balance. This can also be called a partial curtailment. A total mortgage curtailment is when the entire balance of the loan is paid off with a large lump sum ahead of schedule.
Curtailment can also refer to a company's actions. When a company has financial problems or becomes large and sprawling, a common response is to curtail some aspects of the company's operations. This involves contracting or reducing operations of a company in the hope of bringing it financial or operational stability. This management technique is often used when a company has grown too fast and is unable to effectively manage its operations.
BREAKING DOWN Curtailment
Curtailment is a very general term that can be applied to a wide variety of situations that involve stopping or restricting an activity. Any time a person pays down extra principal on their mortgage, they are said to be partially curtailing the life of the mortgage loan. A company that is looking to stop certain operations or activities is said to be curtailing its operations. A company may use several techniques for curtailing its operations, such as cutting down its workforce or spinning off some departments.