Canadian Securities Course (CSC) Level 2 Practice Exam

When do monthly payments on Mortgage Backed Securities usually occur?

1. 1st day of the month

2. 15th day of the month

3. Last day of the month

4. Varies each month

The correct answer is: 15th day of the month

Monthly payments on Mortgage-Backed Securities (MBS) predominantly occur on the 15th day of the month. This standardization is aligned with the common practices in the mortgage industry. Payments made on this date typically reflect the mortgage payments collected from the underlying loans during the preceding month. Investors in MBS can expect predictable cash flows as these securities are structured to provide payments based on the amortization schedule of the pooled mortgages. Understanding this timeline is crucial for investors, as it helps them manage their cash flow expectations and financial planning related to these securities. Other timing options listed don’t align with the traditional practices governing MBS. The 1st day of the month would be less practical given that mortgage payments are usually due at the end of the previous month. The last day of the month would similarly misalign with how mortgage payment processing is structured. Variability in payment dates is not typical for MBS, where most issuers adhere to the 15th day as a common practice, ensuring consistency for investors.