Prepayment Risk

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Chapters in this video

  1. 0:00 Prepayment risk: getting money back early
  2. 1:14 The refinance chain reaction
  3. 3:04 The extension risk flip
  4. 4:03 Prepayment vs extension side by side
  5. 4:39 Exam traps and gotchas
  6. 5:33 Rapid-fire exam recap

What this video covers

  • How falling interest rates trigger prepayment risk by prompting homeowners to refinance mortgages
  • The full chain reaction from rate drop to early principal return to forced reinvestment at lower rates
  • What extension risk is and why rising rates slow prepayments instead
  • Why prepayment risk and extension risk are two sides of the same coin
  • Why neither risk is favorable for mortgage-backed securities (MBS) investors
  • The connection between prepayment risk and callable bonds
  • How the exam tests your ability to match the rate scenario to the correct risk type

Read the full lesson, free

This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete SIE course in the app is free too, including adaptive practice questions and spaced-repetition flashcards.

Read the Free Lesson → free · no signup wall