Burnout

外汇网2021-06-19 14:09:59 44

A period of slowing mortgage ppayment within a mortgage backed security (抵押贷款支持债券). This usually occurs after the mortgages start to mature. When some percentage of the underlying loans fail to ppay after an interest rate cycle, this is known as burnout. Those borrowers who did not refinance during the first interest rate cycle are less like to do so if interest rates drop again.

|||The rate at which the underlying loans of an 抵押贷款支持债券 ppay is largely a function of current interest rates relative to the interest rates on the underlying loans. If current interest rates fall to a certain point below the interest rate on an existing mortgage, borrowers have an incentive to refinance. An 抵押贷款支持债券 can go through several cycles of interest rates over its term. Prepayment risk is a substantial risk for investors in 抵押贷款支持债券s and investors look for 抵押贷款支持债券s with burnout because burnout lessens the ppayment risks.

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