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?

Question

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A lockout provision prohibits the borrower from making prepayments on the mortgage for a specified period of time after its origination, and is therefore used by lenders to mitigate cash flow uncertainty. Defeasance is a method of substituting collateral to release the borrower from the loan, while yield maintenance provisions and demand clauses are used to calculate prepayment penalties or to allow the lender to demand repayment under certain circumstances, respectively.

The Ability of Homeowners to Prepay the Principal on Their