Weighted Average Coupon - WAC
- Weighted Average Coupon - WAC
- The weighted-average gross interest rates of the pool of mortgages that underlie a mortgage-backed security (MBS) at the time the securities were issued. A mortgage-backed security's current WAC can differ from its original WAC as the underlying mortgages pay down at different speeds. In the weighted-average calculation, the principal balance of each underlying mortgage is used as the weighting factor.
For example, suppose a MBS is composed of two different pools of mortgages: $6 million worth of mortgages that yield 7.5% and a pool of $4 million mortgages that yield 5%. The WAC would be 6.5%.
The WAC on a mortgage-backed security is an important piece of information used by analysts to estimate the pre-pay characteristics of that security. It is an important relative value tool in MBS portfolio management and analysis.
Investment dictionary.
Academic.
2012.
Look at other dictionaries:
weighted-average coupon — ( WAC) The average interest rate charged to mortgage loan borrowers in an MBS pool weighted by the size of each loan. Individual loans in an MBS pool will not usually have the same rates of interest. For example, FNMA pools may have mortgages… … Financial and business terms
weighted average coupon — ( WAC) The weighted average of the gross interest rates of mortgages underlying a pool as of the pool issue date; the balance of each mortgage is used as the weighting factor. Bloomberg Financial Dictionary * * * The weighted average coupon… … Financial and business terms
WAC — weighted average coupon (WAC) The average interest rate charged to mortgage loan borrowers in an MBS pool weighted by the size of each loan. Individual loans in an MBS pool will not usually have the same rates of interest. For example, FNMA pools … Financial and business terms
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