SMM = prepayment / (beginning monthly mortgage balance - scheduled principal payments)

Does the ‘prepayment’ term in the numerator represent prepayments INCLUDING scheduled principal payments or simply pre-payments in EXCESS of scheduld principal payments?

For example: SMM = 2,450,000 / (260,000,000 - 1,000,000)

Does the 2,450,000 prepayment in the numerator INCLUDE the 1,000,000 scheduled payment in the denominator, making it actually 1,450,000 that was paid in excess or is the TOTAL combined prepayment (scheduled and not scheduled) actually 3,450,000?

I understand the definition of SMM: Payment in excess of scheduled payments, but this formula and the notation for ‘prepayment’ is a bit confusing.

Thanks in advance.

It’s the percentage of the scheduled balance that has been prepaid, so I would say in excess

I think scheduled principal payment is not cosidered “prepayment” because its scheduled.

So prepayment is just whats not scheduled.

Just my understanding … could be wrong…

The numerator _ does not include _ scheduled principal repayments.

Great, so TOTAL prepayments would actually be 3,450,000 consisting of the 2,450,000 SMM as well as the 1,000,000 that was scheduled. But the amount in excess is the 2,450,000 which is what is called the SMM.

Thanks for clarifying, all.

Total _ principal _ payments would be 3,450,000, of which 1,000,000 was scheduled and 2,450,000 was prepaid (unscheduled). It is not correct to call the entire 3,450,000 prepayments.