Passthrough Rate vs. WAC

CFA Level II Fixed Income
#1

Hi all,

I’m a little confused by the difference between the passthrough coupon rate and the weighted average coupon. If I were to create an amortization table which rate would I use as my interest rate? Or would they be used to calculate my monthly payments (like a coupon rate)?

Any help would be appreciated.

Thanks

#2

The passthrough coupon rate should be used to create amortization table. The difference between the WAC and the passthrough rate will be your fee for providing MBS.