PREPAYMENT PENALTY
\pɹɪpˈe͡ɪmənt pˈɛnə͡lti], \pɹɪpˈeɪmənt pˈɛnəlti], \p_ɹ_ɪ_p_ˈeɪ_m_ə_n_t p_ˈɛ_n_əl_t_i]\
Sort: Oldest first
-
A penalty imposed on the borrower for the complete settlement of the loan before the expected payoff date. It is means of compensation for the lender as the potential interest income is not realized. Also, the possibility of the reinvestment of the complete loan amount at a potentially lower interest rate is extinguished. An average penalty is approximately equal to the interest payments for three months on the loan amount.
By Henry Campbell Black
