Mortgage Pool - Explained
What is a Mortgage Pool?
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Table of ContentsWhat is a Mortgage Pool?How Does a Mortgage Pool Work?Investing in a Mortgage Pool Fund
What is a Mortgage Pool?
A mortgage pool refers to a group of mortgage loans that serve as the bases for the issuance of a mortgage-backed security, that is, these mortgages are held in trust and form the collateral for a mortgage-backed security. A mortgage pool also refers to the grouping of similar mortgages based on their type, size and maturity periods which are then used as collateral for loans. Certain mortgage-backed securities qualify to be called mortgage pools, examples are those issued by Fannie Mae and Freddie Mac.
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How Does a Mortgage Pool Work?
One vital characteristic of mortgage pools is that they comprise mortgages that have similar traits such as similar maturity periods and interest rates. The mortgage pool serves as collateral for mortgage-backed securities giving a guarantee. Fannie Mae and Freddie Mac are federal entities that purchase and securitize mortgages from lenders, and then package these mortgages into a pool based on their similar characteristics.
Investing in a Mortgage Pool Fund
Mortgage pool funds are low-risk investments that individual investors looking for a guaranteed investment in the real estate can consider. Mortgage pool funds offer a steady monthly payment to investors and are secured by real estate. Otherwise called hard money, mortgage pool funds have shorter terms between 10months to three years. These loans are not affected by changes in the interest rates in the market.