Annualized measure of how quickly mortgage pool principal is expected to prepay.
Conditional prepayment rate, often called CPR, is an annualized measure of how quickly mortgage principal in a pool is expected to prepay.
CPR matters because borrower prepayment behavior changes mortgage-backed securities cash flow. If many borrowers refinance or sell earlier than expected, principal returns faster. If fewer borrowers prepay, principal stays outstanding longer.
For borrowers, the term is useful because it shows how individual payoff choices become a market-wide assumption. One borrower paying off a loan is ordinary. Many borrowers doing it together can reshape MBS pricing and mortgage-rate behavior.
Borrowers rarely see CPR in consumer mortgage documents. It appears in MBS analytics, pool reporting, valuation models, and investor discussions of Prepayment Risk.
The term becomes practical when explaining why refinance waves matter to mortgage investors and why mortgage pricing reflects expected borrower payoff behavior.
CPR is commonly connected to Single Monthly Mortality, or SMM, which expresses prepayment speed for one month.
$$ CPR = 1 - (1 - SMM)^{12} $$
In plain language, CPR annualizes a monthly prepayment pattern. It is not the same thing as the mortgage interest rate.
Mortgage rates fall and many borrowers refinance. Analysts may raise expected CPR because more loans in the pool are likely to prepay. Faster prepayments can shorten expected cash-flow timing for MBS investors.
CPR differs from Single Monthly Mortality because CPR is annualized, while SMM is a one-month prepayment-speed measure.
It also differs from Prepayment Risk. Prepayment risk is the uncertainty or exposure. CPR is one way to express assumed or observed prepayment speed.
It also differs from Average Life. CPR is a prepayment-speed input or measure, while average life is a timing result influenced by prepayments.