What Is a Paydown Factor?
A paydown factor is calculated for the reason that basic portion of a per month loan value divided by way of the original basic of the loan. Paydown elements will also be calculated per month and is also integrated in per month statements. A paydown factor is also the most important metric that is most often noticed when examining structured products.
Key Takeaways
- A paydown factor is the % of basic received relative to the original basic amount.
- This factor allows borrowers to raised understand paydown fees.
- A paydown factor is most often reported when examining structured products and mortgage-backed securities.
- The paydown factor provides a trademark for the level of basic being paid down right through a structured credit score ranking product’s portfolio and thus serves as a good measure of the potency of the ones investments.
Understanding Paydown Factor
A paydown factor helps a borrower or investor reach an figuring out of the paydown fees keen on quite a lot of credit score ranking products. Borrowers can calculate a per month paydown factor to research the basic being paid each month. A paydown factor is also an function that is most often reported when examining structured products and specifically mortgage-backed securities (MBS).
Paydown Factor Examples
Loans provide a basic example of calculating a paydown factor. Some lenders would perhaps include a borrower’s paydown factor in their per month statements. The paydown factor displays the amount of basic paid throughout the previous month divided by way of the original basic worth.
For instance, a borrower with a $100,000 mortgage loan paying a 4% annual rate of interest over fifteen years will make per month expenses of $592. The amortization schedule elements throughout the borrower’s 20% down value and amortizes $80,000 over the life of the loan. Throughout the first month, the borrower would pay kind of $267 in pastime with a basic value of $325. The paydown factor for the borrower’s first value would then be $325 / $100,000, or 0.33%. As further of the basic is paid, the paydown factor will building up.
Structured Credit score ranking Products
Structured credit score ranking products typically include a portfolio of loans with more than a few credit score ranking qualities. Maximum continuously, the ones products will probably be comprehensively grouped by way of a function likelihood level in line with the underlying credit score ranking qualities of the loans. The paydown factor can be a good metric for examining the potency of the ones investments as it provides a trademark for the level of basic being paid down across the portfolio.
Calculating the paydown factor for a portfolio of loans aggregates the calculation to include the whole basic paid per month, divided by way of the whole whole basic issued to borrowers.
Mortgage-backed securities most often file paydown elements per month. If the mortgage-backed protection research a steady paydown factor over time, then that can be a good indication that the loans are not at best likelihood of delinquency or default. A significantly reducing paydown factor can be a signal of increasing likelihood on the portfolio. If borrowers throughout the MBS are constantly reporting value delinquencies, then a lower overall amount of the whole portfolio basic will probably be paid down, and the paydown factor will show an important decrease.
Ginnie Mae requires all mortgage-backed securities issuers to post their paydown elements.
