Enter the annualized rate of monthly prepayments and the outstanding balance at the beginning of the period to calculate the CPR.

## CPR Formula

The following formula is used to calculate a constant/conditional prepayment rate.

CPR = ARM / OB

• Where CPR is the constant prepayment rate
• ARM is the annualized rate of monthly prepayments
• OB is the outstanding balanace at the beginning of the period

To calculate CRP, divide the annualized rate of monthly prepayments by the outstanding balance at the beginning of the period.

## What is a constant prepayment rate?

Definition:

A constant prepayment rate (CPR) is a measure of the compounded percentage of a loan amount that is expected to be prepared in the coming year.

Both home equity loans and student loans use this model of prepayment.

## How to calculate a constant prepayment rate?

Example Problem:

The following example outlines how to calculate a constant prepayment rate.

First, determine the annualized rate of monthly prepayments. In this example, the annualized rate of monthly prepayments is $5000. Next, determine the outstanding balance at the beginning of the period. In this case, the outstanding balance is$20,000.00.

Finally, calculate the conditional prepayment rate using the formula above:

CPR = ARM / OB

CPR = 5000 / 20000

CPR = .25 = 25%