Single Monthly Mortality - SMM

AAA

DEFINITION of 'Single Monthly Mortality - SMM'

In mortgage-backed securities (MBSs), this is the percentage of the principal amount of mortgages that are prepaid in a given month. For investors of MBSs, prepayment of mortgages is usually undesirable since future interest is foregone.


This is more broadly referred to as "prepayment risk." Due to the importance of prepayment risk, single monthly mortality was developed as a metric for tracking prepayments in the mortgage pool.

INVESTOPEDIA EXPLAINS'Single Monthly Mortality - SMM'

Prepayment hinders the returns for MBS investors because mortgages are normally prepaid using refinancing loan, and this happens primarily when interest rates have fallen. So while an investor in an MBS believes they have locked in a higher yielding investment in a low rate environment, they may in fact have the carpet pulled out from under them.


The mortgage holders in the MBS may refinance at lower interest rates, and then pay off the mortgage in the MBS pool. Now the investor has their money back and must reinvest the funds in a lower interest rate environment.

RELATED TERMS
  1. Mortgage Putback

    The forced repurchase of a mortgage by an originator from the ...
  2. Prepayment

    The satisfaction of a debt or installment payment before its ...
  3. Prepayment Risk

    The risk associated with the early unscheduled return of principal ...
  4. Prepayment Model

    A model used to estimate the level of prepayments on a loan portfolio ...
  5. Refinancing Risk

    1. The risk that an early unscheduled repayment of principal ...
  6. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
Related Articles
  1. Insurance

    Fannie Mae and Freddie Mac, Boon Or Boom?

    These two companies are crucial to the mortgage market, but are they ticking timebombs?
  2. Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

    Mortgage-backed securities can offer monthly income, a fixed interest rate and even government backing.
  3. Insurance

    Behind The Scenes Of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
  4. Bonds & Fixed Income

    The Risks Of Mortgage-Backed Securities

    Find out how weighted average life guards against prepayment risk.
  5. Personal Finance

    Why Are Mortgage Rates Increasing?

    Learn how the secondary mortgage market and investor demand affect the cost of home ownership.
  6. Personal Finance

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  7. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in Commodities

    Explore diversifying an investment portfolio through investing in commodities ETFs, and get information on some of the best commodity funds.
  8. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in Copper

    Learn about some of the best available ETFs, both commodity-based and stock-based, that investors can use to gain exposure to the copper market.
  9. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in Sugar

    Discover information about the exchange-traded funds, or ETFs, that offer investors exposure to the basic agricultural commodity, sugar.
  10. Mutual Funds & ETFs

    Top ETFs for Investing in Coffee

    Learn about the market for coffee, one of the largest agricultural markets, and two ETFs that investors can use to obtain exposure to the coffee market.
RELATED FAQS
  1. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  2. How are American Depository Receipts (ADRs) priced?

    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
  3. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
  4. How are American Depository Receipts (ADRs) exchanged?

    American depositary receipts (ADRs) are bought and sold on regular U.S. stock exchanges, either in the over-the-counter market ... Read Full Answer >>
  5. Who or what is backing municipal bonds?

    Municipal bonds are backed by dedicated taxes or revenue sources related to specific projects, or by the full faith and credit ... Read Full Answer >>
  6. What are the differences between debt and equity markets?

    The basic differences between the debt and equity markets include the type of financial interest they represent, the way ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!