Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. FHA loans may be prepaid.
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.
Paying on principal, or paying above the minimum payment required by the lender. In the beginning years of the loan, the minimum payment is usually all interest. Anything added to that payment would go to paying off the principal. The more the borrower prepays, the shorter the term of the loan will be. Be sure to check if there are any Prepayment Penalties.