PREPAYMENT RISK Definition

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PREPAYMENT RISK, in the area of mortgage-backed securities, which are backed by loans on property, is the possibility that home owners will payoff their mortgages early, returning the investor's principal earlier than expected. This typically occurs during a declining inter­est rate environment, when home owners can refinance at lower rates, leaving investors vulnerable to the risk of reinvestment at lower rates.

Learn new Accounting Terms

RAN see REVENUE ANTICIPATION NOTE.

CREDIT CARD is a card authorizing purchases on credit at a predetermined interest rate and payment conditions.

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