What do mortgage-backed securities usually provide to investors?

Mortgage-backed securities (MBS) are financial instruments that pool together various mortgage loans and sell them as a single security to investors. The primary benefit for investors in MBS is that they receive income based on the mortgage payments made by the homeowners whose loans are included in the pool. As borrowers make their monthly mortgage payments, these payments include principal and interest, which generate cash flow that is passed through to the investors in the MBS.

This structure creates a consistent stream of income for investors, typically on a monthly basis, which is one of the main attractions of investing in mortgage-backed securities. It’s important to understand the nature of these payments, as they are contingent upon the performance of the underlying mortgages; if the borrowers default or prepay their loans, it could affect the income stream.

Other options might reflect certain aspects related to investing, but they don’t accurately capture the core function of mortgage-backed securities in terms of investor returns. For instance, while tax advantages can exist in various investment vehicles, they are not a defining feature of MBS. Similarly, while some investments can provide a hedge against inflation, this is not a characteristic unique to or primarily associated with mortgage-backed securities. Hence, the most correct understanding is that investors in MBS