What is Single Monthly Mortality (SMM)?
Single Monthly Mortality (SMM) converts the annualized CPR into a monthly rate. Since prepayment is compounding (each month's prepayment applies to the remaining balance after the prior month's prepayment), the conversion is not simply CPR/12. Instead: SMM = 1 - (1 - CPR)^(1/12). For a 10% CPR, the SMM is approximately 0.874%, meaning about 0.874% of the remaining balance prepays each month. SMM is the rate used in month-by-month cashflow projections.
Formula
SMM = 1 - (1 - CPR)^(1/12) CPR = 1 - (1 - SMM)^12
How LoanBook Uses Single Monthly Mortality
LoanBook's cashflow engine uses SMM internally for all monthly cashflow projections. The user inputs CPR (annual), and the engine converts to SMM for each month of the projection. Rate-dependent prepayment in the OAS Monte Carlo engine also operates at the SMM level.
Frequently Asked Questions
Why not just divide CPR by 12?
Because prepayment compounds. Each month's prepayment reduces the base for the next month. Dividing by 12 would overstate total annual prepayment. The correct conversion uses the formula SMM = 1 - (1 - CPR)^(1/12).
Related Terms
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