prepayment

Prepayment

1. The payment of a debt in full before it is due. Prepayment is good for the borrower because it relieves him/her of the debt, but it deprives the lender of interest he/she would have received otherwise. As a result, some lenders attach prepayment penalties to loans to disincentivize prepayments. Prepayment can me a major risk to collateralized mortgage obligations as coupon payments are based on interest received from the underlying mortgages. Less commonly, this is called anticipation. See also: Prepayment risk.

2. Payment in advance for a good or service not yet received.

prepayment

A payment made before the day it is due. For example, sending a check on the transaction date for securities bought with regular-way delivery will almost surely result in prepayment.

prepayment

payment in advance

an expense which is paid in one trading period but which is properly chargeable against the revenues or profits of future trading periods. For example, if a company preparing accounts for the year to 31 December pays its annual rent on 1 April, then only three quarters of that rent relates to the current trading period, the remaining quarter being a prepayment for use of the building from 1 January to 31 March in the next trading period. Prepayments are counted as part of the company's assets at the end of the trading period and are usually included as part of DEBTORS in the firm's BALANCE SHEET. See ACCRUAL.

Prepayment

A payment made by the borrower over and above the scheduled mortgage payment.

If the additional payment pays off the entire balance it is a “prepayment in full”; otherwise, it is a “partial prepayment.” See Partial Prepayments.

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prepayment

Prepayment

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payment in advance

Prepayment

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Words related to prepayment

noun payment in advance

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