prepayment privilege


The option to repay a portion of the principal on a mortgage loan, or to change the payment amounts, without having to pay a penalty.

Lenders sometimes describe prepayment privileges with language like "10+10", which means that once per year you may repay up to 10% of your principal, or increase your monthly payments by 10%.

Many times, prepayment privileges end up being useless to the borrower. A borrower who has sufficient extra money to repay 10% of their principal each year would be better off reducing their amortization and saving more interest.

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