Here is what an offering of a GNMA looks like. I think you can do better in CDs.Charles Schwab & Co. Inc., is pleased to announce the availability of the following new issue Taxable Offering:Issuer Name: Government National Mortgage Association GNMA II Issuer Description: G2 3953. Cusip 36202EMA4. Available on schwab.com. New pool with 1.0 factor, subject to availability. Government National Mortgage Association (GNMA) or "Ginnie Mae" is an agency of the U.S. government. The agency buys qualified mortgage loans, securitizes the loans, and distributes the securities. Ginnie Mae pools are backed by the full faith and credit of the U.S. Government."Average life” is the average number of years that each dollar of principal remains outstanding. It represents the amount of time it takes to receive back approximately half of your principal. This estimate can vary with interest rates and is based on prepayment assumptions that may or may not be met. "PSA" is a benchmark used to evaluate mortgage prepayment speeds. Investors may experience a gain or loss due to prepayment of obligations, and will receive back part or all of their investment before maturity. See www.ginniemae.gov for additional information.Type Of Bond/Security: Asset/Mortgage-backed Security Investment Amount: 25000 Face Min/1000 Face IncrementsCoupon Rate: 5.50%Expected Offering Price: 100 PARAnticipated Yield to Average Life: 5.512%Anticipated Average Life: 7.737 yearsPSA Speed Assumption: 195 PSAAnticipated Final Maturity: 2/20/2037Payment Frequency: Monthly
Shyeah. Penfed pays more than that on a 7-year CD (although you don't have the opportunity for capital gains).
The GNMA is offered at par. You aren't going to get any capital gains on that, either, if you hold to maturity. If you don't, there might be capital gains or capital loss, depending on market fluctuations. Are interest rates going up or down over the next 30 years? Yes. Is 5.5%, guaranteed by the government as to timely payment of interest and principal, and fully taxable, a great rate? I don't think so. Plus there is the risk of early repayments. If interest rates go down, there will be early repayments. If they go up, you're stuck with a 5.5% investment for the better part of 30 years. And a whole brand new GNMA costs $25000. Best wishes, Chris
ChrisYou got it. Peronally, I think if one is interested in exposure to GNMA's, a fund is a better bet (e.g. Vanguard's), but to everyone their own poison.brucedoe
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