PPT Slide
Factors affecting prepayment behavior
1. Prevailing mortgage rate – the current level of mortgage rates
relative to the borrower’s contract rate.
• The spread should be wide enough to cover the costs
2. Path history of rate spread is important
– depends on whether there have been prior opportunities to
refinance since the underlying mortgages were originated.
3. Seasonality – prepayments are low in the winter months
e.g. growing economy results in a rise in personal income and
in opportunities for worker migration.