Question

What mortgage clause allows a lender to charge extra interest if the loan is paid off before the normal completion date?

A) Acceleration clause
B) Prepayment penalty clause
C) Due-on-sale clause
D) Escalation clause

Answer 1

The Prepayment penalty clause allows a lender to charge extra interest if a mortgage is paid off early, protecting the lender's expected interest income.

Step-by-step explanation:

The mortgage clause that allows a lender to charge extra interest if the loan is paid off before the normal completion date is the Prepayment penalty clause. This clause is designed to protect the lender from losing interest income that would have been paid over the life of the loan. The prepayment penalty can be a fixed amount or a percentage of the remaining balance, and its specifics can vary depending on the loan agreement.