Prepayment Penalty

• A prepayment penalty is a fee that is charged to a borrower who prepays their loan early.
• Prepayment penalties are most commonly used in securitisations that are backed by mortgages.
• Prepayment penalties can discourage borrowers from prepaying their loans, as this can reduce the cash flow of the securitisation.
• Prepayment penalties can also generate revenue for the issuer of the securitisation and protect the interests of investors.
• However, prepayment penalties can be seen as unfair to borrowers and can reduce the liquidity of the securitisation.
• Ultimately, the decision of whether or not to use a prepayment penalty in a securitisation is up to the issuer.