Prepayment Risk Definition

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Definition Of Prepayment Risk:

prepayment risk The risk to a lender that part or all of the principal of a loan will be paid prior to the scheduled maturity.
Prepayments generally occur when market rates of interest decline following the loan origination. Prepayment generally results in reduced cash flow to the lender, who must reinvest proceeds from the prepayment at a reduced interest rate. Also called call risk.

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