Weighted Average Coupon (WAC)

Weighted Average Coupon, or WAC, is the dollar-weighted average interest rate of loans in a debt pool, calculated by multiplying each loan’s coupon by its outstanding principal share and summing the results. In commercial real estate finance, WAC is used to describe the average yield on pools of mortgages, securitized CMBS tranches, or a lender’s portfolio. WAC captures the current coupon environment across heterogeneous loans, allowing investors and originators to compare yield characteristics and to model cash flows and pricing for whole loans or securitized structures.

Use WAC when evaluating a loan portfolio or CMBS tranche to estimate the gross interest income generated by the pool under current balances. Incorporate the WAC into cash flow models to project aggregate interest receipts, to analyze spread to benchmarks, and to assess the impact of prepayments or refinances that change weightings. For underwriting or pricing whole loans and portfolios, compare the WAC to the weighted average rate of funding or to hedging costs to determine net interest margins and to evaluate whether the pool meets your return targets.

WAC is important because it succinctly summarizes the interest-earning profile of a heterogeneous group of loans and serves as a core input to pricing, valuation, and risk analysis. Changes in WAC drive projections for interest income, portfolio yield, and the valuation of securitized tranches. For sponsors, brokers, and investors, WAC helps assess how repricing, partial payoffs, or new originations will alter collective yields, and it is fundamental to evaluating the economics of acquisitions, sales of loan positions, and hedging strategies tied to interest income streams.