PREPAYMENT NO RESTRICTIONS

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Prepayment no restrictions

When there is a sale of a property, the purchaser may not have the entire funds to purchase the property and therefore he or she takes a loan so that the balance can be paid. These loans are normally taken from financial institutions. These loans are taken for a stipulated number of years and this can be at a floating rate of interest or a fixed rate of interest. If it is a floating rate of interest, during the entire tenure of the loan, the payment which is due monthly can fluctuate based on the interest rate or if the amount is the same, the installment amount which is allocated towards payment of the interest and the amount which is allocated for payment of the principal will differ. In a fixed rate of interest the same rate of interest is charged throughout the period regardless of the fluctuations in the interest rates.

In all these cases though, the financial institutions may put in a clause that if the loan is paid before it’s time there could be a penalty amount which is charged. However, there is a document called the prepayment no restrictions which when signed means that even if the borrower pays back the entire sum much before the stipulated period of payment, there will be no penalty even if the borrower does not give the financial institution sufficient prior notice that he or she will be paying back the balance of the loan amount much before the tenure of the loan expires.