How long is the expected average mortgage life of a mortgage held in a 30-year mortgage...

How long is the expected average mortgage life of a mortgage held in a 30-year mortgage pool with a 100 PSA?

Multiple Choice

18.29 years
23.90 years
21.33 years
14.68 years
25.25 years

Expert Solution

Solution: The Expected average mortgage life of a mortgage held in 30 year mortgage pool with a 100 PSA is 14.68 years.

Therefore, the correct option is option 4: 14.68 years

Some mortgages in a pool are prepaid earlier than average, some are prepaid later than average, and some are not prepaid at all. The average life of a mortgage in a pool is the average time for a single mortgage in a pool to be paid off, either by prepayment or by making scheduled payments until maturity. Because prepayment shortens the life of a mortgage, the average life of a mortgage is usually much less than a mortgage's stated maturity. We can calculate a mortgage's projected average life by assuming a particular prepayment schedule. For example, the average life of a mortgage in a pool of 30-year mortgages assuming several PSA prepayment schedules is stated below:

Prepayment Schedule	Average Mortgage Life (years)
50 PSA	20.40
100 PSA	14.68
200 PSA	8.87
400 PSA	4.88

jeff jeffy answered 1 year ago

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