CPR (Conditional Prepayment Rate)
Asset-Backed Securities glossary · Collateral & Cash Flow Modeling
Definition
Annualized prepayment rate; CPR = 1 - (1 - SMM)^12.
CPR (Conditional Prepayment Rate) in plain English
CPR is just a way of saying 'what fraction of these loans will get paid off early over a whole year,' expressed as a percentage — a 6% CPR means about 6% of the remaining balance is expected to prepay this year. It's built up from a monthly figure called SMM (the single-month prepayment rate) using CPR = 1 - (1 - SMM)^12, which is really just compounding the monthly rate across all 12 months instead of naively multiplying by 12. Investors watch CPR closely because early payoffs change when they get their money back, and that affects how much they ultimately earn.
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