Prepayment for Month i (in $) = SMM(Beginning Balance – Scheduled Principal Repayment in Month i)

Where SMM is the single monthly mortality rate, i.e., CPR expressed monthly:

$\text{SMM} = 1 - (1 - \text{CPR})^{\frac{1}{12}} = 1 - (1 - 0.04)^{\frac{1}{12}} = 0.3396\%$

Prepayment for Month 2 = $0.3396% (247,409.04 - 1,663.18) = `$834.55`$

Notes:

• (I) CPR is always expressed as a percentage, compounded annually.
• (II) The beginning balance in the second month is also the ending balance in month 1, i.e., $247,409.04. In the same vein, $244,818.08 is the ending balance in month 2 (or the beginning balance in month 3).
• Note also that Total Payments = Principal Payments + Interest Payments.