Correct me if I'm wrong. I understand that when I open a mortgage loan, some underlying bond is issued and purchased by some investors. When the rate is much lower and I refinance and close my previous loan, what happens behind the scenes? Is the underlying security closed at the same time? Or was it changed hands?

1 Answer 1


The underlying investment is usually somewhat independent of your mortgage, since it encompasses a bundle of mortgages, and not only yours. It works similarly to a fund. When, you pay off the old mortgage while re-financing, the fund receives the outstanding debt in from of cash, which can be used to buy new mortgages.

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