Dr. Healy’s Mortgage Prepayment Market Watch: September 2026

Actual residential mortgage prepayment speeds declined again in September, as rising mortgage rates, borrower demographics, and continued economic uncertainty influence refinancing and prepayment trends. In his September 2026 Mortgage Prepayment Market Watch, Dr. Thomas J. Healy examines the latest prepayment data, changes across mortgage coupon categories, and the market dynamics shaping expectations for the months ahead.

OBSERVATION: Actual speeds were down once again in September. While the lowest coupon mortgagors have tired of holding onto their low rate mortgages and are starting to succumb to demographic pressures to refinance or move, rising mortgage rates are muting this trend. Accordingly, the slope of the WAC curve (prepay speeds by coupon) remains somewhat flat at the lower end of the curve, while increasing with coupon. Higher coupons, however, have also experienced a decrease in prepay expectations.

The overall theme for the month remains volatility. The Iranian War, gas prices, China/Taiwan, tariffs, Russia/Ukraine, and a $40T national debt are all contributing to a great uncertainty as to what is coming next. Mortgage rates were up materially from August 31st. Inflation continues to be high, and there is an expectation that the Fed will raise rates again this year.

The average coupon of all loans outstanding in this database ($5.9T) is 4.41% and 78% of all mortgages have coupons under 6.00%. 4% are now over 7% which is now becoming the high risk tranche. However, four dynamics have appeared:

1. Some borrowers are tired of hanging on to their low-rate mortgages and succumbing to demographic pressures (new home, job transfer, etc) to refi
2. Cash-out refis seem to have grown in popularity with approximately 11% of all new loans falling into this category
3. 4% of the outstanding loans are now close to or "in the money" (i.e. ≥ 7.0%)
4. Rates have increased another 50 bps in the last month and it seems probable that they will rise further

It is my expectation that speeds will stay low absent a "black swan" type of economic event.