Paydown Factor

A “paydown factor” basically tells us how much of the principal amount of borrowed money is paid back in a given month.

As an example, let’s look at Vlad. (No, really, everyone look at Vlad.) Vlad is a homeowner with a $2,000 monthly mortgage payment. His original mortgage loan was for $350,000, and he’s locked in at a 3.5% interest rate. According to his statement, $1,300 of last month’s mortgage payment went toward the principal, while the other $700 went to interest. If we want to calculate the paydown factor, all we have to do is divide $1,300 by $350,000. When we do, we get .0037, which tells us that Vlad paid off .37% of his loan principal last month.

Vlad’s a multifaceted kind of guy, so in addition to owning a home, he also invests in mortgage-backed securities, or MBSs. We bring this up because paydown factors have uses outside of individual mortgage calculations. For example, calculating the paydown factor for MBSs works just like it does for single mortgages: we just look at how much of the overall principal amount was paid back in a given month, divide it by the overall principal amount, and voila. MBS paydown factor.