What characterizes the primary mortgage market?

The primary mortgage market is fundamentally characterized as the arena where loans are originated and funded directly by lenders. In this market, consumers approach lenders to secure financing for purchasing homes or properties. The lenders assess the creditworthiness of the borrowers, determine loan terms, and disburse the funds directly to the borrower for the purchase of real estate. This process initiates the mortgage lifecycle, creating an obligation for the borrower to repay the loan over time.

This distinct differentiation from the secondary market, where existing loans and mortgage-backed securities are traded, highlights the role of the primary market as the initial point of contact between borrowers and lenders. In contrast, the secondary market involves buying and selling these financial products after they have been created in the primary market, making it an essential step for liquidity and capital flow but not the focus of loan origination. Refinancing existing loans represents another aspect of mortgage activity, but again, it is not a defining characteristic of the primary market itself.

Understanding that the primary mortgage market is about the direct origination and funding of new mortgages helps clarify its pivotal role in the overall mortgage system.