Soft Pay vs. Hard Pay

In the context of real estate loans, the terms "soft pay" and "hard pay" are typically used to refer to different kinds of loan repayment structures:

Soft Pay: A soft pay, also known as a soft prepayment penalty, is a clause in a loan agreement that allows the borrower to pay off the loan early without incurring a penalty, as long as certain conditions are met. This might include a specified period of time during which the loan cannot be repaid, or conditions under which the loan can be repaid early without penalty. In the context of a mortgage, for example, a borrower might be allowed to make extra payments up to a certain percentage of the original loan balance each year without triggering a prepayment penalty.

Hard Pay: A hard pay, on the other hand, refers to a hard prepayment penalty, which is a fee that the borrower must pay if they repay the loan early, regardless of the circumstances. This fee is typically a percentage of the outstanding loan balance, and its purpose is to compensate the lender for the interest income they would have received if the loan had remained outstanding for the full loan term.

These terms may also be used in the context of real estate mezzanine debt. A soft pay mezzanine loan is typically interest-only with the principal due at maturity, while a hard pay loan includes both principal and interest payments over the life of the loan.

Please note that the exact definitions of these terms may vary depending on the context and the specifics of the loan agreement. Always refer to the specifics of the individual loan agreement to understand the repayment structure and any penalties that may apply.