What is prepayment clause for a mortgage loan?
Here is what a prepayment clause is for a mortgage loan – this is the right of borrower (mortgagor) to pay off the loan early, fully or partially, before its term is due. A popular prepayment clause will include lender’s agreement that no more than 20% of the original loan amount is prepaid in any year of the mortgage term. Another prepayment clause will include provisions for permission of full outstanding principal prepayment for, say, 2% pre-payment penalty. Despite that many mortgage loans have penalty clauses for prepaying their loans, many borrowers actually opt for paying off mortgage loan early.
