Break Costs

Where money is borrowed for a particular period and is repaid early, break costs may arise. These are theoretically linked to the loss or cost to the creditor of having to redeploy its underlying borrowings for the full period. It is common to see (eg in LMA documentation) an obligation on a debtor which wishes to prepay to pay the difference between the amount which would have been payable had the Prepayment not occurred, and the return available from depositing the Prepayment with a bank in the interbank market. Also called Broken Funding Costs.

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