Final answer:
Prepayments due to cash-out refinancing refer to paying off a loan in advance when refinancing a property, When a borrower opts for cash-out refinancing, they take out a new loan that is greater than the amount of the existing mortgage reducing the interest paid and potentially shortening the repayment period.
Step-by-step explanation:
Prepayments due to cash-out refinancing refer to the act of paying off a loan in advance when refinancing a property. When a borrower opts for cash-out refinancing, they take out a new loan that is greater than the amount of the existing mortgage. The excess amount is received in cash and can be used for various purposes, such as home improvements or debt consolidation.
The excess amount is received in cash and can be used for various purposes, such as home improvements or debt consolidation. If the borrower decides to make additional payments towards the loan principal, those payments are called prepayments. Prepayments can help reduce the total interest paid over the life of the loan and may shorten the repayment period.