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From: franka@mmintl.UUCP (Frank Adams)
Newsgroups: net.invest
Subject: Re: Info on \"Ginny Maes\"
Message-ID: <726@mmintl.UUCP>
Date: Wed, 23-Oct-85 15:50:04 EST
Article-I.D.: mmintl.726
Posted: Wed Oct 23 15:50:04 1985
Date-Received: Tue, 29-Oct-85 04:25:25 EST
References: <844@dec-yogi.UUCP> <13000005@tilt.FUN>
Reply-To: franka@mmintl.UUCP (Frank Adams)
Organization: Multimate International, E. Hartford, CT
Lines: 18

In article <13000005@tilt.FUN> stern@tilt.FUN writes:
>(b) If interest rates suddenly drop, there is a chance the mortgage you bought
>will be paid off early (the person accepting the loan borrows more money at 
>the lower rate, and pays off the expensive loan).  If this happens, your nice
>fat return goes away and you have to shop for something comparable.  

A small clarification here -- when you buy into a GNMA, you aren't buy a
mortgage, but a small piece of a lot of mortgages.  Thus when interest rates
drop, there is a near certainty that an increased number of the component
mortgages will be paid off; thus you get more principle now and less interest
later.

This points out one of the other problems with GNMAs -- you don't know
how much you will receive each month.  If you need a predictable cash
flow, look for something else.

Frank Adams                           ihpn4!philabs!pwa-b!mmintl!franka
Multimate International    52 Oakland Ave North    E. Hartford, CT 06108