About prepayment rates

Similar to the Yield Curve, prepayment rates are dated records. They contain the effective prepayment rate and type of prepayment as of a certain date. Depending on Rate Rule settings, the calculation engine selects the prepayment type and rate for a prepayment record that falls on or before an instrument’s effective origination date (the renewal date if valid). The utility returns a 0% prepayment rate if there are no prepayment records on or prior to the effective origination date. Similar to the yield curve lookup formulas, the prepayment lookup uses a derived factor for each prepayment that is added to the lookup dates to provide a unique lookup range for each prepayment name.

TIP: For more information about prepayment names, see Prepayment Categories.

Prepayments will work for instruments having Alternative Payment Schedule (APS) records if they are enabled for FTP.

Axiom Financial Institutions supports the following types of prepayment rates:

• SMM – Single monthly mortality. The Prepay Speed is a monthly rate.
• CPR – Constant prepayment rate. The Prepay Speed is an annual rate.
• PSA – Public Securities Administration. A multiplier that is applied against the PSA factor column to generate the monthly Prepay Speed.

The Prepayment cash flow is calculated as:

• Prepay Speed (converted to SMM) X (Beginning Balance less the Contractual cash flow)

The conversion formula of the CPR and PSA Prepay Speeds is:

• Prepay Speed ^ 1/12