GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

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Pre-payment Penalty


Synonyms:early payment penalty, mortgage pre-payment charge, mortgage pre-payment penalty, pre-payment charge
Filed Under: financial-banking, legal-contracts, mortgages
Tags: banking, contract, legal, mortgage
 

Definition of pre-payment penalty

pre-payment penalty
1. A fee or cost charged to the borrower for paying off the loan before the end of the term.

Related Terms and Acronyms:

  • additional principal payment   Extra money included with a loan payment to pay off the amount owed faster. Over time, this practice reduces the amount of interest paid.
  • blended rate mortgage   If a homeowner renews his or her mortgage early, the old and the new mortgage rates are blended together to split the difference between the interest rates.
  • closed mortgage   Closed mortgages involve a strict repayment schedule of a specific amount with optional limited lump sum payments and payment increases.
  • down payment   The portion of the purchase price a buyer pays, in cash, at the time the loan originates.
  • interest rate differential (IRD)   The penalty one pays for breaking a mortgage.
  • lump sum payment   One-time single-sum payment or payout.
  • mortgage (mtg)   A mortgage is a contract stipulating a specific real property, typically a residence or building, as collateral for a loan. The mortgage incurs a rate of interest that varies according to term and other features.
  • penalty   In mortgage terms, a penalty is a set rate or length of time the penalty will be charged based on the remaining loan amount. The penalty is usually three months interest or interest rate differential.
  • pre-payment   Applying additional payments towards the balance of a mortgage loan.
  • pre-payment clause   A clause that stipulates the amount of principal a borrower may prepay ahead of schedule without penalty as well as the prepayment penalty for larger prepayments.

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