Prepayment Penalty Clause Example

prepayment clause. A loan provision allowing the borrower to pay the loan in full before the maturity date without penalty, or to make principal reductions faster than originally envisioned by the parties. consumer mortgages all have prepayment clauses. Large, commercial loans typically prohibit prepayment.

A prepayment penalty is a provision of your contract with the lender that states that in the event you pay off the loan entirely, you will pay a penalty. Penalties are usually expressed as a percent of the outstanding balance at time of prepayment, or a specified number of months of interest.

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Due-on clause and prepayment penalties. Prepayment penalty provisions in all mortgages containing a due-on clause secured by owner-occupied, one-to-four unit residential property are unenforceable if the mortgage holder: calls the mortgage due for a transfer in breach of the due-on clause; starts foreclosure to enforce a call under the due-on.

Prepayment Penalty. By Investopedia Staff. A prepayment penalty is a clause in a mortgage contract stating that a penalty will be assessed if the mortgage is paid down or paid off within a certain time period. The penalty is based on a percentage of the remaining mortgage balance or a certain number of months’ worth of interest.

Definition of prepayment clause: Provision in some loan agreements under which a borrower may pay off (retire) a loan ahead of the schedule, without incurring prepayment penalty. dictionary Term of the Day Articles Subjects

Where it is, a court will not allow its enforcement to the extent the sum is a penalty. 1 Liquidated damages provide certainty. A valid liquidated damages clause will be an exhaustive remedy,

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A prepayment penalty clause states that a penalty will be assessed if the borrower. Others charge a fee when the balance is paid off within the first five years. Example of a Prepayment Penalty A.

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For example, if you pay off your loan, refinance, or sell your home before a certain date, you could be subject to a prepayment penalty. When Prepayment Penalties Are Allowed Under the rules, a prepayment penalty is allowed only if all of the following are true.