Finance
A prepayment penalty in a mortgage loan refers to:
AA fee charged for paying the loan off before the scheduled maturity date✓ Correct
BA penalty for late payments
CA fee charged for applying for the loan
DA charge for increasing the loan balance
Explanation
A prepayment penalty is a fee charged by some lenders if the borrower pays off the loan before the scheduled maturity date.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
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