Single Monthly Mortality - SMM

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.

BREAKING DOWN '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. Prepayment

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

    The risk associated with the early unscheduled return of principal ...
  3. Public Securities Association Standard ...

    An assumed monthly rate of prepayment that is annualized to the ...
  4. Portfolio Runoff

    A decrease in the assets of a mortgage-backed securities portfolio ...
  5. Dealer-Median Prepayment Speed

    The median value of all Wall Street securities dealers' prepayment ...
  6. Conditional Prepayment Rate - CPR

    A loan prepayment rate that is equal to the proportion of the ...
Related Articles
  1. Managing Wealth

    20 Investments: Mortgage-Backed Securities

    What Is it? A mortgage-backed security (MBS), also known as a "mortgage pass-through" or a "pass-through certificate", is an investment instrument that represents ownership of an undivided interest ...
  2. Personal Finance

    What Happened To The MBS Market?

    Find out how the fall of mortgage-backed securities has changed the financial landscape.
  3. Investing

    Introduction To Asset-Backed And Mortgage-Backed Securities

    In this article, we will go through the structure, along with some examples of ABS and valuation.
  4. Investing

    Subprime Is Often Subpar

    Proceed with caution when considering these short-term, high-interest mortgages.
  5. ETFs & Mutual Funds

    The ABCs of Mortgage-Backed Securities ETFs

    ETFs focused on mortgage-backed securities, or MBS, offer an opportunity to further diversify the fixed-income portion of your portfolio.
  6. Personal Finance

    Shopping for a mortgage in 2016? Use this tool first.

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2016 can all be done online.
  7. Personal Finance

    Shopping for a mortgage in 2016? Use this tool first.

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2016 can all be done online.
  8. ETFs & Mutual Funds

    Top 3 Mortgage Backed Securities (MBS) ETFs (MBB, MBG)

    Discover some of the best opportunities for investors seeking exposure to mortgage-backed securities through utilizing exchange-traded funds.
  9. Investing

    Understanding the Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  10. ETFs & Mutual Funds

    Financial Institutions: Stretched Too Thin?

    Find out how to evaluate a firm's loan portfolio to determine its financial health.
RELATED FAQS
  1. Why do MBS (mortgage-backed securities) still exist if they created so much trouble ...

    Read several different arguments in favor of allowing the trade of mortgage-backed securities, even after the financial crisis ... Read Answer >>
  2. What are the best ways to invest in mortgage-backed securities (MBS)?

    Find out how you can start investing in real estate through mortgage-backed securities. Read Answer >>
  3. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Answer >>
  4. Do FHA loans have prepayment penalties?

    Learn whether FHA loans have prepayment penalties, and find out the rules governing interest charges when prepaying your ... Read Answer >>
  5. What is the process to take over a mortgage through a loan assumption?

    My landlord wants me to take over her mortgage.  ... Read Answer >>
  6. What's the difference between a collateralized mortgage obligation (CMO) and a mortgage-backed ...

    Find out more about collateralized mortgage obligations and mortgage-backed securities and the difference between the two ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center