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Prepayment speeds can be expressed in SMM (single monthly mortality), CPR (conditional prepayment rate, which is the annually compounded SMM), or PSA (percentage of the Public Securities Association prepayment model). For mortgages at least 30 months old, 100% PSA = 6.0% CPR = 0.51% SMM, equivalent to the full prepayment of 6% of a pool's ...
A prepayment penalty is a fee that some lenders charge when you pay off your mortgage early. Typically, the prepayment penalty only applies to paying off your mortgage in full or making a ...
Each monthly prepayment is assumed to represent full payoff of individual loans, rather than a partial prepayment that leaves a loan with a reduced principal balance. Variations of the model are expressed in percent, e.g., "150% PSA" means a monthly increase of 0.3% in the annualized prepayment rate, until the peak of 9% is reached after 30 months.
Also known as the "Sum of the Digits" method, the Rule of 78s is a term used in lending that refers to a method of yearly interest calculation. The name comes from the total number of months' interest that is being calculated in a year (the first month is 1 month's interest, whereas the second month contains 2 months' interest, etc.).
Key takeaways. A prepayment penalty is a fee designed to discourage borrowers from paying off a loan ahead of time. Refinancing your mortgage or selling your home could trigger this penalty.
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A commonplace method of mortgage acceleration is a so-called bi-weekly payment plan, in which half of the normal calendar monthly payment is made every two weeks, so that 13/12 of the yearly amount due is paid per annum. [2] Commonplace too, is the practice of making ad hoc additional payments. The agreements associated with certain mortgages ...
This amortization schedule is based on the following assumptions: First, it should be known that rounding errors occur and, depending on how the lender accumulates these errors, the blended payment (principal plus interest) may vary slightly some months to keep these errors from accumulating; or, the accumulated errors are adjusted for at the end of each year or at the final loan payment.