It's just like any other secondary market, more or less. Stocks come public in an IPO, and they then trade afterwards on NASDAQ and the NYSE and other volatile places in the secondary market. (The primary market is the market where companies are funded for a given issue the first time, like for an IPO financing.)
Mortgages work the same way. An original mortgage is written for a borrower buying their lovely 2,300-square-foot home on a half acre with a picket fence for $382,000, putting down $82,000 and borrowing $300,000 at 5%. That mortgage is paid off in 30 years, and it carries value. That future stream of payments can be bought and sold more or less like any other bond in the markets...trading away, happily churning out interest payments and principal paydowns to its paper holders until it one day retires to that great paid-off-mortgage-farm in the sky.
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Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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