Monthly mortgage-pool prepayment rate used to translate annual CPR assumptions into one-month cash-flow behavior.
Single monthly mortality, usually shortened to SMM, is the percentage of eligible mortgage principal that prepays during one month after scheduled principal is accounted for.
SMM matters because mortgage cash flow arrives month by month. Investors and analysts need a monthly measure of unscheduled principal from full payoffs and other included prepayments, rather than only an annual assumption.
For borrowers, SMM is a market-side explanation of a familiar event. A homeowner may refinance, sell the property, or otherwise pay a mortgage off early. Across a large Mortgage Pool, those individual decisions become a measurable prepayment speed.
Faster SMM generally returns principal to investors sooner. Slower SMM leaves more principal outstanding. Neither result changes the contract of any borrower in the pool, but the timing affects security valuation, expected life, and reinvestment decisions.
Borrowers do not normally see SMM on a Loan Estimate, Closing Disclosure, or servicing statement. It appears after loans have been pooled, in MBS analytics, prepayment reports, and cash-flow models.
The term becomes practical when analysts need to describe a single observation month or convert that month into Conditional Prepayment Rate, or CPR, for annualized comparison. Observed SMM can vary from month to month because refinancing incentives, home sales, loan age, seasonality, and pool characteristics change.
SMM is the one-month measure. CPR expresses an equivalent annualized pace assuming the monthly rate continued for 12 months.
Both values must be written as decimals in the formula. A 6% CPR is 0.06, not 6.
The conversion is compounded rather than calculated as CPR / 12. Dividing by 12 produces a rough shortcut, but it does not give the equivalent monthly rate.
Suppose an analyst uses a 6% CPR assumption. The equivalent monthly rate is:
That equals about 0.514% SMM. If a pool has $98 million eligible for the month after scheduled principal, applying that simplified rate implies roughly $504,000 of unscheduled principal for the month:
Actual reporting conventions determine the exact balance and prepayment components used. The example shows the scale and interpretation, not a security-specific calculation.
| Influence | Typical connection to monthly prepayment |
|---|---|
| Mortgage rates fall below borrowers’ existing rates | Refinancing may increase SMM |
| Home-sale activity rises | More loans may pay off at sale |
| Pool seasons beyond its first few months | More borrowers may become able or willing to prepay |
| Rates rise well above existing loan rates | Refinancing may slow, reducing SMM |
| Loan or program characteristics differ | Pools may show different prepayment behavior under similar rates |
SMM is an observation or modeling measure, not a promise. A rate calculated from one month does not guarantee that the next month will behave the same way.
SMM differs from Conditional Prepayment Rate because SMM covers one month while CPR states an annualized pace. They can describe equivalent assumptions after conversion, but their percentages are not directly interchangeable.
It differs from Pool Factor, which reports the remaining principal relative to the pool’s original balance. Pool factor is a balance snapshot; SMM is a one-month flow rate.
It also differs from Prepayment Risk. Prepayment risk is the uncertainty and financial exposure created by early payoff behavior. SMM is one metric used to observe or model that behavior.
Finally, SMM does not mean the same thing as scheduled amortization. Scheduled principal follows the payment schedule. SMM isolates unscheduled principal under the applicable reporting convention.
CPR / 12 not the exact SMM conversion?
The exact conversion compounds the monthly survival rate over 12 months.