CMO, or Collateralized Mortgage Obligation, is a type of mortgage-backed security that pools together a large number of mortgages and issues several classes or tranches with varying degrees of risk and returns.
Interest rate risk refers to the potential variability in investment returns due to changes in interest rates. This risk can profoundly impact the market value of real estate investments and mortgage-backed securities.
A rate cap refers to predetermined limits placed on adjustments to the interest rate on an adjustable-rate mortgage (ARM), safeguarding borrowers from excessive rate fluctuations over the life of the loan.
A rate guarantee, also known as a locked-in interest rate, ensures that the interest rate on a mortgage loan will not change for a specified period, even if broader market interest rates fluctuate during that time.
