17.6 The Mortgage Market
17.6 The Mortgage Market
The mortgage market is the system that connects borrowers who need funds with lenders and investors who supply funds. In this topic, you’ll learn the difference between the primary and secondary mortgage markets and why “money flow” matters to interest rates and loan availability.
Primary vs. Secondary Mortgage Markets
The mortgage market is often described in two parts:
- Primary market: where loans are originated (made) to borrowers by lenders.
- Secondary market: where existing mortgage loans are bought and sold (often bundled into mortgage-backed securities).
Money Flow in the Mortgage Market
Mortgage lending depends on a steady flow of capital. Funds move from investors into lending channels, then to borrowers, and then back to investors through loan payments (principal and interest). This flow helps determine how available mortgage money is—and at what cost.
Exhibit 17.4 (Money Flow in the Mortgage Market):
Note: Paste the Exhibit 17.4 image link above when ready.
What Influences Mortgage Availability and Rates
Mortgage rates and loan availability are influenced by overall economic conditions and financial markets. When interest rates rise, borrowing becomes more expensive and affordability can drop. When rates fall, borrowing becomes cheaper and demand often increases.
- Interest rate environment: affects affordability and lender pricing.
- Investor demand: affects how easily lenders can sell loans and replenish funds.
- Risk appetite: affects underwriting strictness and loan program availability.
Where the Money Comes From
Choose the best answer for each question, then select Check Answers.
The primary mortgage market is where:
The primary market is where lenders originate loans to borrowers.
The secondary mortgage market is important because it:
By selling loans, lenders recycle capital and can originate more loans.
