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Prepayment Penalty

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Prepayment Penalty

A fee charged by a lender for agreeing to allow a borrower to payoff a loan prior to the end of the contractual loan period. A prepayment penalty (i.e. prepayment fee) is meant to cover the cost to lender of a loan paid off prior to the agreed upon date, especially as it relate to the lender’s reinvestment cost and interest rate risk.

Common forms of prepayment penalty in commercial real estate include a percentage of outstanding loan balance, Defeasance, and Yield Maintenance.

Related Content:
  • What's New - Accelerator Changelog
  • Mortgage Prepayment Fees, Including Yield Maintenance and Defeasance
  • Glossary: Yield Maintenance
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AdventuresinCRE.com (A.CRE) was started by Spencer Burton and Michael Belasco during their first year of graduate real estate studies at Cornell University. The site was initially meant to fill a need for readily available real estate financial modeling tools. Today, it is the web's preeminent real estate financial modeling, careers, and education resource.

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