Primary Mortgage Market

The primary mortgage market is the market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction. Mortgage brokers, mortgage bankers, credit unions and banks are all part of the primary mortgage market.

After being originated in the primary mortgage market, most mortgages are sold into the secondary mortgage market. Unknown to many borrowers is that their mortgages usually end up as part of a package of mortgages that comprise a mortgage-backed security (MBS), asset-backed security (ABS) or collateralized debt obligation (CDO).

The primary market is made up of primary lenders. Primary lenders typically keep the loans they originate as part of their portfolio and service them for the life of the loan (but not always). Some advantages of using the primary mortgage market as a borrower include: 

Low closing costs: Primary lenders are typically locally-owned, community banks. That means that the lenders are able to do all of the paperwork and documentation in-house instead of going through a corporate chain, thus eliminating most of the fees that come along with closing a loan on the secondary market. 

Flexibility: Because the originators of the loan are typically locally-owned banks, it is more likely that the borrowers will be able to communicate with the people who get the final say, which is unlikely to happen at a national bank. This provides more flexibility if the borrowers have a unique financial situation. 

Smaller down payments: The down payment for primary lenders will usually be around 10 percent. 

Adjustable Rate Mortgages are usually offered: ARM loans means that the borrower's rate is fixed for a set period of time and then adjusted annually on an index that was pre-determined by the lender and the borrower. There's almost always a cap on how the interest rate could go during the lifetime of a loan, which makes it easier to calculate and budget for your maximum monthly payment. 

As stated above, the primary mortgage market is where borrowers and mortgage originators meet and negotiate to create a mortgage loan. Loans are originated in the primary mortgage; originators can include mortgage brokers, mortgage bankers, commercial banks and credit unions. Oftentimes, after the borrower has used their mortgage loan to purchase their home, the bank with whom he or she worked with to originate the loan will sell his or her loan. This means that the borrower must now make payments to the different entity that now owns his or her loan. When a loan is sold, it is sold on the secondary mortgage market. Mortgage originators sell their loans on the secondary mortgage market to investors or mortgage aggregators.