About Constant/Conditional Prepayment Rate (CPR) Calculator (Formula)
The Constant/Conditional Prepayment Rate (CPR) Calculator is a tool used to determine the rate at which borrowers prepay their mortgages on a monthly basis.
It is commonly used in the analysis of mortgage-backed securities and is an important metric for investors and analysts to consider when assessing the potential risk and return of these investments.
The CPR is calculated using the formula:
CPR = Annualized Rate of Monthly Prepayments / Outstanding Balance
This formula takes into account the rate at which borrowers are paying off their mortgages each month, as well as the outstanding balance of the mortgages, to give a snapshot of the prepayment activity in the underlying pool of mortgages.
The CPR is expressed as a percentage and can be used to compare the prepayment activity of different pools of mortgages, as well as to project future cash flows for a given pool of mortgages.