Weighted Average Coupon - WAC

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS 'Weighted Average Coupon - WAC'

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.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Commercial Mortgage-Backed Securities ...

    A type of mortgage-backed security that is secured by the loan ...
  3. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  4. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
  5. Pool Factor

    The percentage of the original principal that is left to be distributed ...
  6. Surrender Period

    The amount of time an investor must wait until he or she can ...
Related Articles
  1. How Interest Rates Affect The Housing ...
    Economics

    How Interest Rates Affect The Housing ...

  2. Profit From Mortgage Debt With MBS
    Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

  3. What is a Ginnie Mae security?
    Retirement

    What is a Ginnie Mae security?

  4. A Look At The Most Popular Bitcoin Exchanges
    Investing Basics

    A Look At The Most Popular Bitcoin Exchanges

Hot Definitions
  1. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  2. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  3. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  4. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  5. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
  6. Macroeconomics

    The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena ...
Trading Center