Glossary
Prepayment penalty
A fee some lenders charge for paying a loan off early. Rare on consumer loans, common in commercial lending — always check the note.
A prepayment penalty compensates the lender for interest it loses when you pay off a loan ahead of schedule. Federal rules have made them rare on consumer mortgages and personal loans, but they still appear in auto, commercial, and some subprime lending. Before you plan to pay a loan off early — or refinance it — read the note to confirm there is no penalty eating into your savings.
Related terms
- Jumbo loan A mortgage larger than the conforming loan limit, which cannot be bought by Fannie Mae or Freddie Mac — so it carries stricter terms.
- Deed of trust A three-party document (borrower, lender, trustee) some states use instead of a mortgage to secure a home loan against the property.
- Credit report The detailed record of your borrowing history that your credit score is calculated from — maintained by the three national bureaus.
- PMI Private mortgage insurance — a monthly premium that protects the lender, not you, when your down payment is under 20%.
- Unsecured A loan that requires no collateral — approval rests on your credit profile and income.
- HELOC A revolving credit line secured by your home, usually at a variable rate — draw and repay as needed, like a credit card backed by the house.