Page 23 of 29Glossary Last Update

5/2024 Prepayment penalty A provision in some loans that charges a fee to a borrower who makes mortgage payments ahead of schedule. A fee can be assessed as a percentage of the loan balance or as a flat rate, such as a certain number of months’ worth of interest payments. New mortgage reform has placed limits on prepayment penalties and requires lenders to offer an alternative transaction that does not include a prepayment penalty. Module 4.1 Principal The amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. This does not include the interest paid to borrow that money.