Question

The ability of homeowners to prepay the principal on their outstanding mortgage balance creates cash flow uncertainty for the lender. As a result, the lender may wish to prohibit prepayment on a mortgage loan for a specified period of time after its origination. This is accomplished through which of the following?

Answer 1

D. lockout provision

Step-by-step explanation:

This is accomplished through a specific provision known as the lockout provision. Like mentioned in the question this provision keeps the borrower from being able to pre-pay their mortgage for a specific amount of time after origination. This therefore reduces the amount of risk that the lender undertakes when the interest rates fall and the borrow then tries to make the loan void.