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Funding-Strategy – Details


10-Year Fixed Rate Mortgages at 3.375%

April 09, 2012

Ten-year fixed rate mortgage products are increasing in popularity as a refinance alternative for seasoned 15- or 30-year fixed rate mortgages, or for customers looking forward to paying off their mortgage before retirement. Members posting aggressive mortgage rates may attract a larger market share and still make a profitable spread by relying on long-term advances as the funding source for originations. Retaining mortgage originations in the portfolio provides an annuity stream of interest income and adds organic growth to the balance sheet, rather than the one-time fee income generated by selling the mortgages into the secondary market.

If rates rise, it is likely the prepayments would slow, thereby extending the average life of the mortgage. If rates fall, prepayments would likely accelerate leaving excess funding to be reinvested at prevailing market rates. These strategies assume the rate changes ramp up evenly over the first 24 months, and then remain at that level for the remaining term. Below are three examples of common funding scenarios for 10-year fixed rate mortgages:

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