Prepayment Risk
The uncertainty related to unscheduled prepayment in excess of scheduled principal repayment.
Investopedia Commentary
This risk is generally associated with mortgage securities. It affects the value of these securities because any prepayments will shorten the life of the security. The return on the MBS will either increase or decrease depending on the frequency of prepayments and the likelihood of these prepayments being related to anticipated movements of interest rates.
Related Links
Asset Allocation within Fixed Income
See also: Contraction Risk, Extension Risk, Fannie Mae, Interest Rate, Mortgage Backed Security, Pass Through Security, Prepayment
prepayment risk