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What is the primary impact of the secondary mortgage market on interest rates?
It has no impact.
It stabilizes interest rates.
It makes interest rates volatile.
It increases rates for borrowers.
The correct answer is: It stabilizes interest rates.
The primary impact of the secondary mortgage market on interest rates is that it stabilizes them. The secondary mortgage market enables lenders to sell mortgages to investors, which provides them with liquidity to fund new loans. This process creates a larger pool of capital available for lending, ultimately contributing to a more consistent supply and demand balance for mortgage loans. When lenders can easily sell off their loans, they are more willing to offer competitive rates to borrowers, knowing they can quickly recoup their investments. This dynamic helps to smooth out fluctuations in interest rates that might occur due to varying economic conditions or shifts in supply and demand for mortgages. Instead of experiencing abrupt spikes or drops in rates, borrowers benefit from a more predictable and stable interest rate environment fostered by the activities and mechanisms of the secondary mortgage market.