Question:

What is Constant Prepayment Rate (CPR)?

Answer:

The Constant Prepayment Rate (CPR), also called Conditional Prepayment Rate, expressed as a percentage over a pool of mortgages is in fact the rate, at which principal is expected to prepay in the given year (usually, the next one). That is, if a certain mortgage loan pool has a CPR of 9%, then 9% of the existing pool principal outstanding is expected to prepay over the next tax year.

CPR is important for MBS/ABS investors.

The Constant (conditional) Prepayment Rate (CPR) is mostly used when comparing mortgage backed (MBS) and asset based (AB) securities. That is, the lower the CPR the better for investors. The CPR is most often used to describe prepayment levels for pools of home equity loans.

Another useful measure for investors beside the CPR is the Monthly Payment Rate (MPR). It is a repayment measure rather than prepayment; it is important for ABSs. ABS issues are required to set a minimum MPR. When monthly repayment of principal and interest drop to the set MPR minimum, this is a trigger for early amortization for the particular security.

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Common misspellings: mortage and morgage