prepayment risk

prepayment risk
The risk associated with early payments of obligations. A prime example is the risk that a borrower will repay a fixed-rate mortgage early at a time when interest rates are falling, leaving the lender with a lower interest income than anticipated. To offset this risk, lenders sometimes impose a prepayment penalty on loans.

Big dictionary of business and management. 2014.

Игры ⚽ Поможем решить контрольную работу

Look at other dictionaries:

  • Prepayment Risk — The risk associated with the early unscheduled return of principal on a fixed income security. Some fixed income securities, such as mortgage backed securities, have embedded call options which may be exercised by the issuer, or in the case of a… …   Investment dictionary

  • prepayment risk — The risk that prepayments will speed or slow and therefore change the yield and/or life of the security. American Banker Glossary …   Financial and business terms

  • Prepayment Risk — (риск досрочного погашения) риск того, что доходность инвестиций может снизиться вследствие того, что часть или вся инвестированная сумма будет выплачена до установленного срока или быстрее, чем ожидалось. В более широком смысле риск досрочного… …   Ипотека. Словарь терминов

  • Prepayment — is early repayment of a loan by a borrower. In the case of a mortgage backed security (MBS), prepayment is perceived as a risk, because mortgage debts are often paid off early in order to incur lower total interest payments through cheaper… …   Wikipedia

  • Prepayment Penalty — A clause in a mortgage contract that says if the mortgage is prepaid within a certain time period, a penalty will be assessed. The penalty is usually based on percentage of the remaining mortgage balance or a certain number of months worth of… …   Investment dictionary

  • Prepayment — 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. 1. Examples include deferred expenses such as rent and early loan repayments. 2. Mortgage pass through securities are prone… …   Investment dictionary

  • Prepayment Privilege — The right given to a debt holder to pay all or part of a debt prior to its maturity or ahead of schedule, usually without risk of penalty. Prepayment privileges are often elements of such debts as mortgages or automobile loans. They are in… …   Investment dictionary

  • Extension Risk — The risk of a security s expected maturity lengthening in duration due to the deceleration of prepayments. Extension risk is mainly the result of rising interest rates, and is generally associated with mortgage related securities. The opposite of …   Investment dictionary

  • Contraction Risk — The risk faced by the holder of a fixed income security when borrowers increase the rate at which they pay back the maturity value of the fixed income security. Contraction risk is a component of prepayment risk that increases as interest rates… …   Investment dictionary

  • Public Securities Association Standard Prepayment Model - PSA — An assumed monthly rate of prepayment that is annualized to the outstanding principal balance of a mortgage loan. The PSA model is one of several models used to calculate and manage prepayment risk. The PSA model acknowledges that prepayment… …   Investment dictionary

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”