Risk Terms

Prepayment Risk

Definition

What is Prepayment Risk?

The risk that borrowers repay principal earlier than expected, changing an investment's cash flows and return.

Example in practice

Homeowners refinance after rates fall, returning mortgage principal early.

Keep learning

The possibility of loss because broad market prices or rates move against an investment.

The possibility that a borrower or issuer will fail to make promised payments or suffer a downgrade.

The possibility that changing market interest rates will reduce an investment's value or income appeal.

A day on which relevant financial institutions and markets are open for normal processing.

Think you know your investing terms?

Put your knowledge to the test with a quick quiz.