Question

Outstanding                           Mortgage         Net      Scheduled

Month      Balance          SMM           Payment     Interest       Principal         Prepayment

100      231,249,776    .00514          1,898,682    1,445,311 332,928         __________

Please calculate the expected prepayment for month 100.

Answer 1

As per the given data we have to calculate the prepayment for month100 by using SMM model which is given by

SMM=prepaid principal for momth t ÷(outstanding loan balance at the beginning of month t - scheduled principal payment)

Where :

Month t=100

Prepaid principal =prepayment

Outstanding balance at the beginning of month100= dollars 231249776

Scheduled principal payment =332928

SMM=.00514

HENCE

.00514=prepayment ÷(231249776-332928)

Thus prepayment =1186912.6