U.S. Mortgage Index

Prepayment

Definition

Prepayment is paying a mortgage faster than the schedule requires—by sending extra principal or by paying the loan in full before the term ends.

In plain English

The amortization schedule assumes a payment path. Sending extra principal, or paying the loan off early, is prepayment. Some loans have rules about prepayment. This page names the act. It does not list penalties or advise anyone to prepay.

Technical definition

Fannie Mae’s consumer glossary describes prepayment as paying a loan faster than scheduled. An extra principal payment is one method of prepayment, not a different idea.

Why it matters

Payoff quotes, refinance, and extra-payment questions all depend on whether the borrower is departing from the scheduled path.

Sources reviewed