Form 6-4

If the note allows partial prepayment, the prepayment clause (form 6-3 in this chapter) should specify how the prepayment will be applied. The following clauses suggest three possibilities; the appropriate clause should be added to the prepayment clause if the prepayment clause does not specify how the prepayment will be applied.

Application of Prepayment

Clause 6-4

1

Prepayments will be applied to installments on the last maturing princi­pal, and interest on that prepaid principal will immediately cease to accrue.

Clause 6-4

2

Partial prepayments will be credited to principal; installments will con­tinue as scheduled and interest on that prepaid principal will immediately cease to accrue.

Clause 6-4

3

Prepayments will be applied first to accrued interest and the remainder to installments on principal in the inverse order of maturity so that they will be applied to the last maturing principal installments first. These prepayments will not reduce the amount or time of payment of the remaining installments, which will continue until the Principal Amount and all accrued interest are paid. Interest on the prepaid principal will immediately cease to accrue.