Prepayment Penalty

Definition: A prepayment penalty is a charge that may apply when a borrower repays all or part of a loan early under specified contractual and legal conditions.

Example

A loan agreement provides a charge for a qualifying early payoff during a stated period.

Keep the distinction clear

Many mortgages have no prepayment penalty. Whether a fee applies depends on the loan, the timing, the amount prepaid, and governing law.

Related terms

Prepayment Clause · Interest · Promissory Note

Keep studying

Mortgages: Borrower, Lender, Ownership, and Key Clauses

References: CFPB: prepayment penalties

Pronunciation (US): pree-PAY-muhnt PEN-uhl-tee (capitals show stress)

Pronunciation reference: Merriam-Webster