Understanding Redisbursement: What You Need to Know

Redisbursement refers to the process of returning a portion of the original loan amount to the lender, usually when the borrower prepays the loan or sells the property that serves as collateral for the loan. This can occur when the borrower refinances the loan, pays off the loan early, or sells the property and uses the proceeds to repay the loan.

For example, let's say you borrowed $100,000 to purchase a house, and the lender charged a loan origination fee of $5,000. If you prepay the loan after five years, the lender may require you to pay back the entire $5,000 origination fee as part of the redisbursement process. This means that you would need to repay $105,000 ($100,000 in principal plus the $5,000 origination fee) to fully settle the loan.

Redisbursement can be an important consideration for borrowers who are planning to refinance or sell their property, as it can affect the amount of money they will need to pay back to the lender. It is typically outlined in the loan agreement and can vary depending on the specific terms of the loan.