Risk that prepayments will be slower than the assumed rate causing later-than-expected return of principal.
The risk that rising interest rates may slow prepayment speeds and therefore cause an investment in a pass-through or CMO MBS to last longer than the investor anticipated. By taking longer to return the investor's principal, the extension of the MBS prevents the investor from taking advantage of higher rates available from other investments.
For a CMO, the risk that rising interest rates may slow the anticipated prepayment speeds, causing investors to find their principal committed longer than they expected.
The possibility that prepayments will be slower than an anticipated rate causing later-than-expected return of principal. This usually occurs during times of rising interest rates.
The risk to the investor in mortgage-backed securities due to increases in the prepayment rate. When the prepayment rate decreases, typically when interest rates have risen, the effective maturity of the security lengthens.
is the risk of decline in value for certain fixed-income securities because principal payments are not made as early as possible.
The risk that rising interest rates will slow the anticipated rate at which mortgages or other loans in a pool will be repaid.
For mortgage-backed securities, the risk that rising interest rates may slow down mortgage prepayment. Because investors' money is tied up in the securities, they may miss the opportunity to earn a higher rate of interest on a different investment.
