Understanding Financing with WAC: What You Need to Know

When it comes to financing, there are many terms and concepts that can be confusing. One such term is WAC, which stands for With Approved Credit. In this blog post, we will explore what WAC means, how it works, and provide examples to help you better understand this important concept.

What Is a With Approved Credit (WAC) Statement?

A With Approved Credit (WAC) statement is a qualifier used in advertisements that protects the advertiser against accusations of misleading customers. It is often seen in financing offers, such as car loans or mortgages, where the terms and conditions are subject to the approval of the applicant's credit.

Understanding WAC Statements

WAC statements are used to ensure that customers are aware that the advertised financing terms are contingent upon their creditworthiness. This means that if you see a financing offer with WAC, you may not qualify for the advertised terms if your credit score or financial situation does not meet the lender's criteria.

Key Takeaways

• With Approved Credit (WAC) statements protect advertisers from accusations of misleading customers.
• WAC statements indicate that financing terms are subject to credit approval.

Example of a WAC Statement

Let's say you're looking to buy a new car and you come across an advertisement that offers financing with an interest rate of 2.99% WAC. This means that to qualify for the 2.99% interest rate, you must have approved credit. If your credit is not approved, you may still be able to get financing, but the interest rate could be higher.

What Is the Weighted Average Coupon (WAC)?

The Weighted Average Coupon (WAC) is a measurement of the rate of return on a pool of mortgages packaged for sale as a mortgage-backed security (MBS). It takes into account the interest rates of the individual mortgages in the pool and calculates an average rate.

Understanding a Weighted Average Coupon (WAC)

The WAC is an important metric in the mortgage-backed securities market as it helps investors understand the potential return on their investment. It provides a snapshot of the average interest rate of the mortgages in the pool.

Key Takeaways

• The Weighted Average Coupon (WAC) measures the average interest rate of a pool of mortgages packaged as a mortgage-backed security.
• It helps investors understand the potential return on their investment.

Calculating the WAC

The WAC is calculated by weighting the interest rates of the individual mortgages in the pool based on their outstanding balances. The formula for calculating the WAC is as follows:

WAC = (Interest Rate1 * Balance1 + Interest Rate2 * Balance2 + ... + Interest Raten * Balancen) / Total Balance

Where Interest Rate1, Interest Rate2, ..., Interest Raten are the interest rates of the individual mortgages, and Balance1, Balance2, ..., Balancen are their respective outstanding balances.

When an MSB Gets Risky

In some cases, when an MBS becomes risky due to factors such as a higher default rate or changes in interest rates, the WAC can change. This can impact the returns for investors who hold these securities. It's important to carefully analyze the WAC and other risk factors before investing in mortgage-backed securities.

Conclusion

Understanding financing with WAC is crucial when evaluating offers and investments that involve credit. By comprehending the implications of WAC statements and the calculation of the Weighted Average Coupon, you can make more informed decisions about financing options and mortgage-backed securities. Remember to always consider your own financial situation and creditworthiness before entering into any financing agreement.