Question

Nearly every mortgage that is issued today contains which of the following?

Select one:
a. A release clause
b. An assumption clause
c. A prepayment clause
d. An alienation clause

Answer 1

A prepayment clause allows borrowers to pay off their mortgage early or make additional payments before the scheduled due date, helping to save on interest costs. Option c

Step-by-step explanation:

A prepayment clause is a provision in a mortgage that allows the borrower to pay off the mortgage in full or make additional payments before the scheduled due date. It gives the borrower the flexibility to make early repayments, which can save them interest costs in the long run.

For example, let's say a borrower has a 30-year fixed-rate mortgage with a prepayment clause. If they come into some extra money, they can choose to make an additional payment towards the principal balance of their mortgage. By doing so, they will reduce the overall amount of interest they need to pay over the term of the loan. Option c