i was reading RBC’s Q3 results presentation and in one section, the margins are lower and it says “Lower prepayment rates affecting QoQ change in margin”. I’m just confused as to how lower prepayment rates cause the margins to decrease. If people are prepaying less, isn’t that a good thing? any ideas? thanks
Margins are set at a fixed rate (kinda locked rate). If the rate is lower, company doesn’t make money.
prepayment penalties artifically inflate the margin so less prepayments results in less one time margin boost (the net interest margin, that is).