Investopedia

Continue to Site »

Public Securities Association Standard Prepayment Model - PSA

Filed Under » ,
Dictionary Says

Definition of 'Public Securities Association Standard Prepayment Model - PSA'

An assumed monthly rate of prepayment that is annualized to the outstanding principal balance of a mortgage loan. The Public Securities Association Standard Prepayment model (PSA) is one of several models used to calculate and manage prepayment risk. The PSA model acknowledges that prepayment assumptions will change during the life of the obligation and affect the yield of the security. The model assumes a gradual rise in prepayments, which peaks after 30 months. The standard model, called "100 percent PSA," starts with an annualized prepayment rate of 0% in month zero, with 0.2% increases each month until peaking at 6% after 30 months.

Also called "PSA prepayment model."
Investopedia Says

Investopedia explains 'Public Securities Association Standard Prepayment Model - PSA'

Prepayment assumptions are based on data that show during the first few years, a borrower is less likely to move to a different home, is less likely to refinance and is less likely to be able to afford additional payments. An annual conditional prepayment rate of 6% is assumed after 30 months. The Public Securities Association Standard Prepayment model was developed by the Public Securities Association (PSA). The PSA eventually became the Bond Market Association, and in 2006, after merging with the Securities Industry Association, become the Securities Industry and Financial Markets Association (SIFMA).

Articles Of Interest

  1.

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.

  2. Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.

  3. Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.

  4. Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.

  5. I'm about to retire. If I pay off my mortgage with after-tax money I have saved, I can save 6.5%. Should I do this?

    Only you and your financial advisor, family, accountant, etc. can answer the "should I?" question because there are many more factors that aren't in the assumptions you included, and a lot of ...

  6. Should You Add A Securities License To Your Qualifications?

    Clients love planners who sell securities, but a securities license takes a lot of work. Learn if the stress and study are worth it.

  7. The Best Way To Buy Silver

    Discover whether ETFs or physical bullion is the best way for investors to get exposure to silver.

  8. 5 ETFs Flaws You Shouldn't Overlook

    Despite their popularity, exchange traded funds have some drawbacks that investors should know about.

  9. Investing In IPO ETFs

    Learn the history, rules and risks of investing in IPO exchange-traded funds.

  10. 5 Common Misconceptions About ETFs

    The rise in these funds' popularity has contributed to misinformation about what they are and how they work. Learn more here.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Winner's Curse

    Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result, the largest overestimation of an item's value ends up winning the auction.

  2. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.

  3. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  4. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  5. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  6. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.
Trading Center