Weighted Average Coupon - WAC


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.

BREAKING DOWN '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.

  1. Coupon

    The annual interest rate paid on a bond, expressed as a percentage ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Pool Factor

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

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

    A type of asset-backed security that is secured by a mortgage ...
  6. U.S. Savings Bonds

    A U.S. government savings bond that offers a fixed rate of interest ...
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