Mortgage yield

When the coupon payments are made on a monthly basis, the mortgage yield can be calculated as:

${\displaystyle {\mbox{Mortgage Yield: ri such that P}}=\sum _{n=1}^{N}{\frac {C(t)}{(1+ri/1200)^{t-1}}}}$

Where

t - the time of the cash flow

n - each instance of coupon payment

r - the discount rate

${\displaystyle C(t)}$ - the net cash flow (the amount of cash) at time t.

Mortgage yields are primarily a tool for comparing mortgage bonds with conventional bonds. The difference between the mortgage-backed bond's yield (generally converted to semi-annually compounded yield to maturity) and a conventional bond is called the "yield spread" or "I-spread."