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GLOSSARY
Prepayment privilege
Prepayment privilege is a debt option that allows the borrower to pay off the debt before maturity.
Prepayment risk
Prepayment risk is the risk of suffering lost income on a fixed-income security due to early payoff of the outstanding debt. On a mortgage-backed security (MBS), for example, the underlying mortgage borrowers may refinance their mortgages if markets rates go down significantly. When this happens, the income-producing asset pool of mortgage loans is reduced; investors, therefore, ultimately receive a lower yield on their investment. Some securities are structured with protections against prepayment risk.
Prepayment speed
Prepayment speed is an estimate for how quickly mortgage borrowers in a securitized pool of mortgage loans will refinance or repay their mortgages. Prepayment speed is an indication of prepayment risk associated with a particular issue of mortgage-backed securities (MBS). Investors look at prepayment speed when judging the value of a particular MBS investment.
Prequalification
Prequalification is the process of estimating how much a prospective homebuyer can borrow based on current interest rates and the borrower's stated income. Prequalification doesn't represent a binding loan approval.
Previous balance
Previous balance, in an open-ended credit arrangement, is the amount of revolving debt outstanding at the beginning of a billing cycle. Some credit agreements calculate interest on the previous balance amount, which results in higher interest costs to the borrower.
Previous balance method
Previous balance method is a means of calculating interest charges on a revolving credit account, such as a credit card. The interest rate is applied to the entire amount outstanding at the start of the billing cycle, regardless of whether any of this balance was paid down during the billing cycle. The previous balance method usually results in higher interest charges than other methods.
Primary care network
Primary care network is a group of healthcare professionals who provide healthcare services to a defined set of insured individuals. These providers are the first point of contact when an insured is in need of healthcare services. The insurance plan creates and defines the primary care network.
Primary mortgage market
The primary mortgage market is the industry that originates mortgage loans, inclusive of mortgage lenders, brokers, and borrowers. The primary functions associated with originating mortgage loans are differentiated from the activities in the secondary mortgage market, where funded mortgage loans are bought and sold as investments.
Prime
Prime describes the best-qualified borrower, as in: "Only prime borrowers will qualify for this low rate." The term is related to the prime rate, which is a base lending rate reserved for the most creditworthy borrowers.
Prime accounts
Prime accounts are accounts receivable that are high enough quality to be included as collateral for a business loan. The loan agreement will provide an exact definition of prime accounts, but generally, they have to be current and held by creditworthy customers. Prime accounts are also called eligible accounts.
Prime bank
Prime bank, in proper usage, describes a large, reputable international bank. In more common usage, however, the term is used by con artists when scamming investors out of money. The SEC has published warnings to consumers and investors to be cautious about dealing with anyone who describes high yield investment programs backed by a prime bank. Often, these investment programs are fictitious, and the investors lose their money.
Prime conforming
Prime conforming describes a mortgage loan made to a well-qualified borrower in an amount that's within the conforming limits set by the Office of Federal Housing Enterprise Oversight (OFHEO). Prime refers to the borrower's creditworthiness; conforming refers to the conservative loan size and structure, which makes the loan eligible for resale to, or guarantee by, Fannie Mae and Freddie Mac.
Prime for life
Prime for life is a line of credit whose interest rate is the prime rate with no margin. Since the prime rate is a variable value, a prime for life loan is a variable-rate instrument. Only the most creditworthy borrowers normally qualify for a prime for life debt.
Prime rate
The interest rate that a bank charges its most reliable customers who are the least likely to default on their loan.
Principal
The actual value of a mortgage or note borrowed or the balance left of a loan not taking into account any interest.