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Prepayment Option
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(1) A mortgagee's right to prepay a mortgage, sometimes subject to a fee or penalty. The prepayment option may be exercised if the building is sold or if interest rates decline and the mortgage can be refinanced at a lower rate. (2) The embedded call option that allows a bond issuer to retire or refinance a bond prior to its nominal maturity. See also Callable Securities, Embedded Option, Mortgage Prepayment Cap, Interest Only (IO) Obligation, Refi Rate.
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