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How the Secondary Mortgage Market Works in Connecticut

By Tiffany Raiford

Connecticut homeowners should have at least a minimal idea of what exactly their mortgage entails. This might include a basic knowledge of the secondary mortgage market in Connecticut and precisely how it works. While it might not seem important to you, it is. When you take out a mortgage on a home you are now involved in the primary mortgage market. What you might not know, however, is that you could become a part of the secondary mortgage market.

What is the Secondary Mortgage Market?

Your mortgage with a lender is called a primary mortgage. It's between you and the financial institution that decided you were worthy of the terms of a loan agreement. Essentially, there are only two parties involved. However, many Connecticut mortgage lenders decide to enter into the secondary mortgage market, which is a way of recouping the money they lent you from an investor. Essentially, your mortgage is packaged with other mortgages of the same type and rate and sold to an investor such as Freddie Mac or Fannie Mae.

How Does it Work?

It might come across as complicated, but the way in which the secondary mortgage market works in Connecticut is actually quite simple. Say, for example, that you apply for a mortgage loan with your local bank and your application is accepted. You will close on your home and move in. Once you do this, your lender will then pool your loan with other loans of the same terms in a package called a mortgage backed security. It is then sold to an investor such as Freddie Mac or Fannie Mae, who are the primary decision makers in how mortgages are underwritten. Of course, there are other investors aside from Freddie Mac and Fannie Mae, they are simply the largest and most well-known.

How it Benefits You

While it might not seem like it makes a difference in your life, the secondary mortgage market in Connecticut does just that. By selling mortgages to investors such as hedge funds and insurance companies, you are allowing rates to stay low and affordable, especially after the subprime meltdown that occurred with the sudden economic downturn. Connecticut's secondary mortgage market makes it possible for credit to be offered to virtually all borrowers.

The secondary mortgage market isn't something you'll deal with directly, or probably even care about as a whole. However, it's important to understand what it is, how it works and how it affects your mortgage. No one should enter into any type of real estate contract without full understanding of your financial terms.

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