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. Pool Factor

    The percentage of the original principal that is left to be distributed ...
  3. Commercial Mortgage-Backed Securities ...

    A type of mortgage-backed security that is secured by the loan ...
  4. Mortgage-Backed Security (MBS)

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

    The interest rate stated on a bond when it's issued. The coupon ...
  6. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
RELATED FAQS
  1. What is a Ginnie Mae security?

    A Ginnie Mae, or Government National Mortgage Association security, functions similarly to the process of lending someone ... Read Full Answer >>
Related Articles
  1. Economics

    How Interest Rates Affect The Housing Market

    Understand how rate changes can affect home prices, and learn how you can keep up.
  2. Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

    Mortgage-backed securities can offer monthly income, a fixed interest rate and even government backing.
  3. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.
  4. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.
  5. Mutual Funds & ETFs

    Is the TLT ETF a Good Bet for the Long Run?

    Is the iShares 20+ Year Treasury Bond ETF (TLT) a good bet for the long run?
  6. Bonds & Fixed Income

    African Equities vs. Bonds: Risks and Rewards

    A look at the risks and rewards of exposure to African equities vs. bonds.
  7. Bonds & Fixed Income

    How Rate Hikes Will Affect Your Investments?

    An interest rate hike by the Fed, which will happen either during their June or September meeting, could impact your fixed income investments.
  8. Professionals

    Is Now the Time for Junk Bonds?

    A bet on high-yield bonds is a bet that the global economy will continue to improve...but not too much.
  9. Investing Basics

    What Is Cold Storage For Bitcoin And Why Does It Matter?

    With increasing incidents of hacking in the world of digital currency, cold storage offers a safe place for the cryptocurrency owners.
  10. Mutual Funds & ETFs

    Preferred Stock ETFs: Are They Right for You?

    Considering preferred stock ETFs? Here's a look at their pros and cons.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center