The Constant Default Rate (CDR) is a key metric in finance used to estimate the percentage of loans that have defaulted during a specific period, especially within mortgage-backed securities or loan portfolios. This value helps analysts, lenders, and investors understand the credit risk associated with a batch of loans. A high CDR indicates a greater likelihood of loan defaults.
Formula
The formula to calculate the Constant Default Rate is:
CDR = (Defaults ÷ Total Loans) × 100
How to use
- Enter the total number of defaults (loans that failed to repay) into the first input field.
- Input the total number of loans originated in the second field.
- Click the Calculate button.
- The calculator will display the CDR as a percentage.
Example
If there are 15 defaulted loans out of 500 total loans, the calculation will be:
CDR = (15 ÷ 500) × 100 = 3.00%
This means that 3% of the loans defaulted during the observed period.
FAQs
- What is a Constant Default Rate?
It’s the percentage of loans that have defaulted in relation to the total loans issued. - Why is the CDR important?
It helps measure credit risk in loan portfolios or mortgage-backed securities. - What does a high CDR indicate?
A high CDR implies a greater portion of the loan pool is defaulting, signaling increased risk. - Is CDR used only in mortgage-backed securities?
No, it’s also used in other forms of asset-backed securities and general lending portfolios. - Can the CDR be negative?
No, defaults cannot be negative, so the CDR is always a non-negative value. - What’s a normal range for CDR?
It varies by industry, but a range of 1%–5% is generally considered acceptable in many portfolios. - How often is CDR calculated?
CDR can be calculated monthly, quarterly, or annually depending on the reporting structure. - Is a zero CDR good?
Yes, it means no loans have defaulted, which is ideal from a lender’s perspective. - Can CDR help predict future risks?
Yes, analyzing trends in CDR helps identify rising credit risks early. - How does CDR differ from default probability?
CDR is an observed percentage, while default probability is a predictive metric. - What is considered a loan default?
Usually, a loan is considered in default after a specified number of missed payments. - Can I use this calculator for personal loans?
Yes, it applies to any portfolio of loans, whether commercial, mortgage, or personal. - Is CDR useful for investors?
Yes, investors use CDR to assess the credit quality of securitized loan portfolios. - What affects the CDR value?
Economic conditions, borrower profiles, and lending standards all influence CDR. - Can CDR fluctuate over time?
Yes, it changes depending on how many new defaults occur relative to total loans. - Is CDR always expressed as a percentage?
Yes, it’s typically shown as a percentage for easy comparison. - Can I calculate CDR without a calculator?
Yes, but using a calculator simplifies and speeds up the process. - Does CDR reflect early repayments?
No, CDR only accounts for defaults, not prepayments. - What’s the difference between CDR and CPR?
CDR measures defaults; CPR (Conditional Prepayment Rate) measures early loan payoffs. - Is CDR used in loan underwriting?
Yes, underwriters consider historical CDRs when evaluating loan risk.
Conclusion
The Constant Default Rate Calculator is a valuable tool for financial professionals, investors, and analysts looking to assess loan performance. By understanding the rate at which loans are defaulting, stakeholders can make informed decisions about credit risk and portfolio health. This simple calculator allows quick and accurate computations, helping you stay ahead of potential financial pitfalls.