Dr. Healy’s Mortgage Prepayment Market Watch: Volatility Remains the Theme

by Dr. Thomas J. Healy, Friday, August 28, 2026

Mortgage prepayment speeds remain a closely watched indicator for mortgage investors and servicers, particularly as borrowers continue to navigate an uncertain interest-rate environment. In his latest analysis, Dr. Thomas Healy looks at the latest movement in prepayment speeds and the broader economic and market factors influencing borrower behavior.

OBSERVATION: Speeds were down a bit this month. Interestingly, the lower coupons showed another monthly increase, while the higher coupons experienced drops. The overall theme for the month remains volatility. The Iranian War, gas prices, China/Taiwan, tariffs, Russia/Ukraine are all contributing to a great uncertainty as to what is coming next. Mortgage rates were up from June 30th. Inflation continues to be high, and we have a new Fed chairman who is supposed to get it under control. Rates appear to be climbing, however, and given that the national debt just hit $40T, the general consensus is that they will continue.

The average coupon of all loans outstanding in this database ($5.8T) is 4.37% and 78% of all mortgages have coupons under 6.00%. However, four dynamics have appeared:

Some borrowers are tiring of hanging on to their low-rate mortgages and succumbing to demographic pressures (new home, job transfer, etc) to refi
Cash-out refis seem to be growing in popularity with approximately 10% of all new loans falling into this category
1/7th of the outstanding loans are now close to or “in the money” (i.e. >= 6.0%)
Rates have increased 32 bps in the last month and it seems likely that they may rise further. It is my expectation that speeds will stay low absent a “black swan” type of economic event.

July’s data continues to point to a cautious prepayment environment. While borrower behavior is showing some signs of change, the combination of elevated mortgage rates, economic uncertainty, and a large concentration of low-coupon mortgages continues to weigh on overall speeds. As Dr. Healy notes, absent a significant economic event, prepayment speeds are expected to remain low.