afborganir

Afborganir refers to repayments of loan principal made before the scheduled due date. In Icelandic financial usage, the term can appear as afborganir in the plural, with afborgun used for the singular form. Afborganir can be partial or full and are in addition to the regular installments that cover interest and principal.

Afborganir depend on the terms of the loan agreement. Some contracts allow unlimited partial prepayments with no penalties, while others cap yearly prepayments or impose a prepayment fee. Certain products permit only specific prepayment opportunities or require a re-amortization if the term or monthly payment is to be adjusted. The reason lenders sometimes charge a penalty is to compensate for the loss of interest the lender would have earned if the loan were repaid early.

Financial effects for the borrower are generally favorable: prepayments reduce the outstanding balance and the total interest paid over the life of the loan, and can shorten the loan term. If the original term is kept, monthly payments may fall; if the term is shortened, the monthly payments may not change and the loan ends sooner. Prepayments can also affect the borrower’s liquidity and financial planning, so terms should be reviewed carefully.

In Iceland, banks commonly offer afborganir for consumer loans and mortgages, but terms vary by product and lender. Borrowers should review penalties, limits, accepted forms of payment, and how prepayments impact amortization.

See also: loan, amortization, prepayment penalty, mortgage.