Rate of mortgage cash flow passed through to investors in a pass-through mortgage security.
Pass-through rate is the rate of mortgage cash flow passed through to investors in a pass-through mortgage security.
Pass-through rate matters because it helps separate borrower-level interest from investor-level cash flow. The borrower pays according to the mortgage note, but not every part of that payment necessarily passes directly to investors as security cash flow.
It also matters because MBS terminology can sound like ordinary loan pricing. Borrowers do not choose a pass-through rate at closing; it is part of how pooled mortgage cash flow is labeled and distributed in the secondary market.
Borrowers usually encounter pass-through-rate language only when learning about MBS pricing or why mortgage rates are tied to investor demand.
The term becomes practical when comparing Pass-Through Security, MBS Coupon, and the borrower’s Note Rate.
| Term | Where it sits |
|---|---|
| Note Rate | Borrower’s mortgage note |
| MBS Coupon | Security-level rate label |
| Pass-through rate | Investor cash-flow rate after relevant deductions |
| Servicing-Released | Sale structure that may affect who controls servicing economics |
A pool of mortgages backs a pass-through security. Borrowers make monthly payments under their notes, and a defined cash-flow rate is passed through to investors after the structure’s deductions. That investor-facing rate is the pass-through rate.
Pass-through rate differs from Note Rate because the note rate is written into the borrower loan, while the pass-through rate describes investor cash flow.
It differs from MBS Coupon because coupon is the stated security rate label, while pass-through rate emphasizes the cash flow passed through to investors.
It also differs from Guaranty Fee because the guaranty fee is a cost tied to agency support, while the pass-through rate is the investor-facing cash-flow rate after relevant deductions.