The prepayment clause addresses:

• A. The escrow arrangement
• B. The borrower's right to pay early and any penalties
• C. The due on sale conditions
• D. The lender's right to foreclose

Answer: (B)

A prepayment clause controls whether you can pay off all or part of the loan before the scheduled end and what costs or restrictions apply if you do. It explains if paying early is allowed without penalty, or if there’s a prepayment penalty and how that penalty is calculated. It may also specify how extra payments are applied (toward principal) and any time limits or notices needed for making a prepayment. This helps you understand the true cost of paying ahead and whether it saves you interest, depending on the loan terms. This concept is separate from an escrow arrangement (funds held for taxes and insurance), separate from a due-on-sale clause (which can require full repayment if the property is sold), and separate from the lender’s rights if you default and foreclosure.