Mortgage Basics

Prepayment

Direct definition

Prepayment means paying toward a mortgage balance beyond the scheduled payment, whether as extra principal or paying the loan off entirely early.

Written by the Vabasso Mortgage Editorial Team · Reviewed against agency and federal sources · Read our editorial policy for how we research and review mortgage content

Plain-English explanation

Borrowers can make prepayments through extra principal payments, lump sums, or paying off the loan in full before its term ends. Doing so can reduce total interest paid, subject to any prepayment penalty terms in the note.

Why it matters

Understanding your loan's prepayment terms helps you decide whether extra payments make sense and whether any penalty applies.

Where you may see it

Promissory note
Amortization schedule
Mortgage statement

A real-world example

For illustration, a borrower who makes an extra $200 principal payment each month could shorten their loan term and reduce total interest over time.

Educational and illustrative only

A common misunderstanding

Prepayment does not automatically reduce your required monthly payment — extra principal typically shortens the loan term rather than lowering future payments, unless you request recasting.

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This glossary provides general educational information. Mortgage terminology, qualification methods, forms, timelines, fees, program rules, and legal meanings may vary by lender, investor, loan program, property, occupancy, state, and transaction. Definitions do not represent loan approval, legal advice, tax advice, or a commitment to lend.

Author: Vabasso Mortgage Editorial Team
Reviewed by: Vabasso Mortgage Licensed Advisory Team
Last reviewed: July 30, 2026