weighted-average coupon rate(redirected from Weighted Average Coupon Rates)
Weighted-Average Coupon Rate
The interest rate the holder of a mortgage-backed security is paid. It is calculated by taking the gross of the interest rates owed on the mortgages underlying the security and weighting them according to the percentage of the security that each mortgage represents. For example, if a very simple MBS is backed by three mortgages, one representing the gross interest rate and the other two representing one-quarter each, one gives twice the weight to the first mortgage when calculating the weighted average coupon. It is important to note that the weighted average coupon rate may change over the life of the MBS because different mortgage holders pay down their mortgages at different rates, changing the weights. See also: Prepayment risk.
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weighted-average coupon rate
A valuation of mortgage loans pooled into a mortgage pass-through security and calculated by multiplying the amount of the mortgage that is outstanding by the weighting of each mortgage loan in the pool.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.