Prepayment is the early repayment of a loan by a borrower, in part (commonly known as a curtailment) or in full, often as a result of optional refinancing to take advantage of lower interest rates.
[1] In the case of a mortgage-backed security (MBS), prepayment is perceived as a financial risk—sometimes known as "call risk"—because mortgage loans are often paid off early in order to incur lower interest payments through cheaper refinancing.
Super sinkers are usually home-financing bonds that repay bondholders their principal quickly if homeowners prepay their mortgages.
In general, only borrowers who expect to keep their loans for many years should opt for below-market interest rates by paying mortgage origination points or forgoing automobile rebates.
Homeowner prepayment decisions are impacted by a number of variables and are notoriously hard to predict, adding another layer of uncertainty to investing in MBS markets.