The MBS Structure Understanding Yield Credit Quality Selecting an MBS Investment Other MBS Products Understanding Yield Yield is the rate of return on an investment over a given time, expressed as an annual percentage rate.
Yield is affected by the price paid for the investment and the timing of the security's cash flow.
The interest rate, or coupon, of an MBS, like the interest rate of a bond, is simply the annual rate at which interest is paid on the instrument. The feature that most distinctively differentiates a mortgage investment from a traditional bond is the principal repayment method. Whereas a traditional bond typically repays the entire principal amount at maturity, an MBS repays principal throughout the life of the investment. Consequently, an analysis of cash flow is very important to MBS investors. The higher the interest rate, the slower the amortization of principal.