MBS partial prepayments

“partial prepayments occur when mortgagors take advantage of the prepayment privileges set out in the provisions and prepay a portion of the oustanding principal without penalty. By making a partial prepayment, the borrower is effectively shortening the remaining amortization of the mortgage and the weighted average of the remaining amortization in the MBS pool” I thought if someone prepays part of their mortgage, then it just means they have to pay less each month from now on and the amortization period remains the same. is that not true, or do the monthly payments stay the same but just the amortization period gets shorter. thanks

khanazam Wrote: ------------------------------------------------------- > “partial prepayments occur when mortgagors take > advantage of the prepayment privileges set out in > the provisions and prepay a portion of the > oustanding principal without penalty. By making a > partial prepayment, the borrower is effectively > shortening the remaining amortization of the > mortgage and the weighted average of the remaining > amortization in the MBS pool” > > > I thought if someone prepays part of their > mortgage, then it just means they have to pay less > each month from now on and the amortization period > remains the same. That’s not how it works. >is that not true, or do the > monthly payments stay the same but just the > amortization period gets shorter. thanks That’s how it works. If you want your monthly payments to go down, you need to refinance.

What are the advantages for the banks/loaners to allow the borrowers to “refinance”?

ancientmtk Wrote: ------------------------------------------------------- > What are the advantages for the banks/loaners to > allow the borrowers to “refinance”? Mortgage lending is a competitive business. Let’s say you have a $400,000 ARM (that is about to reset at a rate of 8%) with Bank A and you want to refinance to a fixed rate mortgage. Bank B offers you $400,000 at 7.5% fixed, and you take that money and pay off your mortgage at Bank A. Bank B may not be earning the same margin as Bank A was, but they have just taken some business away from a competitor and gained some business themselves. Note: Edited to include ARM rate