In real estate finance, a prepayment privilege is the borrower’s right to pay off a loan early, either in full or in part, without incurring a penalty. This right is defined in the loan agreement and specifies the conditions under which early payment is permitted.
A prepayment privilege gives borrowers flexibility to reduce interest costs, refinance, or retire debt ahead of schedule. Loans with this feature may have different interest rates or terms to reflect the lender’s acceptance of potential early payoff.
