Refinancing risk: Difference between revisions

From ACT Wiki
Jump to navigationJump to search
imported>Doug Williamson
m (Changed category to be more specific 9/10/13)
imported>Doug Williamson
(Align with qualifications material.)
Line 11: Line 11:
3.  
3.  


The risk to an investor that an early unscheduled repayment of principal on mortgage-backed securities (MBS) will occur when the underlying mortgages are refinanced by borrowers.  
The risk to an investor in mortgage-backed securities (MBS) that an early unscheduled repayment of principal will occur when the underlying mortgages are refinanced by borrowers.  


All MBS buyers assume some level of prepayments in their initial yield calculations, but an increase in the level of refinancing (which usually occurs as a result of falling interest rates) means that MBSs mature faster and will have to be reinvested at lower rates.
All MBS buyers assume some level of prepayments in their initial yield calculations, but an increase in the level of refinancing (which usually occurs as a result of falling interest rates) means that MBSs mature faster and will have to be reinvested at lower rates.
Line 17: Line 17:


== See also ==
== See also ==
* [[CMBS]]
* [[Mortgage ]]
* [[Mortgage ]]


[[Category:Manage_risks]]
[[Category:Manage_risks]]

Revision as of 16:13, 9 May 2015

1.

For any borrower, the risk of adverse pricing or lack of availability of replacement financing, when the current financing reaches the end of its term.


2.

For a mortgage borrower, the risk that he or she will not be able to refinance an existing mortgage at a future date under favourable terms.


3.

The risk to an investor in mortgage-backed securities (MBS) that an early unscheduled repayment of principal will occur when the underlying mortgages are refinanced by borrowers.

All MBS buyers assume some level of prepayments in their initial yield calculations, but an increase in the level of refinancing (which usually occurs as a result of falling interest rates) means that MBSs mature faster and will have to be reinvested at lower rates.


See also