Prepayment risk - Financial definition
Concise definition of the term prepayment risk
Refers to the risk in classic mortgage-backed securities that the mortgages in the pool will be repaid by borrowers quicker than expected (probably because interest rates have fallen making it attractive to repay fixed-rate mortgages).
Comprehensive definition of the term prepayment risk
Investors in the mortgage-backed securities will have to refinance at a lower interest rate.