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Funding-Strategy – Details

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15-Year Fixed Rate Mortgages at 2.75%

January 08, 2013

Mortgage rates continue to trend near record lows. The 15-year fixed-rate mortgage rate is about 2.75% this week, and many members indicate that they are willing to hold these mortgages in the loan portfolio. Members have access to a reliable source of advances to fund mortgage originations and hedge the interest-rate risk. Retaining mortgage production adds organic growth to the balance sheet and an annuity stream of income at a time when most investment alternatives offer very little yield.

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 fixed-rate mortgages.

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