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Funding-Strategy – Details

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30-Year Fixed Rate Mortgages at 3.75%

March 25, 2013

Using long-term wholesale advances as the source for funding mortgage originations offers members of the Federal Home Loan Bank of Boston the opportunity to generate attractive spreads even in this persistent low rate environment. By locking in the spread on the mortgages held in portfolio, a member has the potential to hedge the risk of rising interest rates and minimize the volatility of net interest income.

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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