Prepayment Clause

Definition: A prepayment clause addresses the borrower's ability to pay principal before its scheduled due date and the conditions that apply.

Example

A borrower checks the loan documents before making an extra principal payment or paying off early.

Keep the distinction clear

A provision allowing prepayment without penalty differs from a prepayment penalty. Read the actual terms rather than assuming all early payments create a fee.

Related terms

Prepayment Penalty · Principal · Promissory Note

Keep studying

Mortgages: Borrower, Lender, Ownership, and Key Clauses

References: CFPB: prepayment penalties

Pronunciation (US): pree-PAY-muhnt KLAWZ (capitals show stress)

Pronunciation reference: Merriam-Webster