Prepay Analysis: December 2025

OBSERVATION: Prepayment speeds were mixed once again this month. Conventional fixed-rate and jumbo loans experienced higher speeds, while government loans and ARMs fell. Despite this divergence, the broader trend appears to be upward, particularly among coupons above 6%.

Across the $5.8 trillion database, the average outstanding coupon is 4.27%, with 83% of loans carrying rates below 6.00%. Within this backdrop, four notable dynamics have emerged:

1. Some borrowers are tiring of hanging on to their low-rate mortgages and succumbing to demographic pressures to refi (such as home purchases, relocations, job changes, etc.)
2. Cash-out refis seem to be growing in popularity, with approximately 10% of all new loans falling into this category
3. Roughly 1/6th of the outstanding loans are now close to or "in the money" (i.e. >= 6.0%)
4. Finally, mortgage rates remain low relative to levels observed over the past year.

The wild card now is whether the Federal Reserve's easing will continue and, if so, what impact that will have on longer term rates (i.e. mortgages). Additionally, it appears from the data that mortgagors with ultra-low coupons (<3.0%) are NOT succumbing to demographic pressures and refinancing into higher cost mortgages.  34% of borrowers had mortgages < 3.0% in 2023; that percentage is still 34% today. These borrowers are holding onto their once-in-a-lifetime rates and not letting go. This has not changed over the last several months.