Half-Life

A date some time in the future when half of the total principal of a mortgage-backed security will be paid off. The interest payments are not taken in to account when calculating the half-life. While an estimate can be made as to what the half-life will be, it is not definite as the variables of the security may change.

The time taken to reach half-life is very dependent upon interest rates. As interest rates fall, the principle will be paid off quicker as homeowners refinance their mortgages. Similarly, as interest rates increase, the half-life will increase as homeowners will hold onto their mortgages for longer.