Prepayment Charge Definition: A prepayment charge is a charge or a fee that may accompany a prepayment in some cases where a loan or mortgage is expected to be paid in a certain number of installments. While not all mortgages have a penalty for a prepayment, it may only apply if your mortgage or loan balance is paid in full, well in advance of the term or due date.
Normally, a mortgage is paid over a set number of years and payments, and while there may not be a penalty for a partial advance payment, paying the entire balance of what’s left on the mortgage may incur extra fees based on the mortgage agreement. If a borrower intends to make a prepayment towards a mortgage, it’s essential to get familiar with the terms of a loan agreement beforehand.
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