Extension risk

Extension risk is a form of liquidity risk and interest rate risk for a financial institution.

It arises from the later than expected repayment by customers of, for example, residential mortgages.

The consequence is an extension of the maturity of the mortgage asset, and an increase in the amount and maturity of funding needed to fund the asset for its longer remaining life.

See also

• Interest rate risk
• Mortgage
• Pipeline risk
• Prepayment risk
• RMBS