What does the term "secondary market" refer to in real estate finance?

The term "secondary market" in real estate finance specifically refers to the platform where existing mortgages are bought and sold. This market allows lenders to sell their loans to investors, which helps to provide liquidity in the mortgage market. In essence, the secondary market supports the primary market—where mortgages are initially created—by providing a way for lenders to free up capital. This mechanism is crucial for sustaining the flow of funds into new mortgages, as it allows lenders to sell off the loans they have originated and use the proceeds to issue more loans.

This concept is fundamental in understanding how mortgage financing operates beyond just the immediate transaction between the borrower and the lender. The existence of the secondary market enables a broader range of financing options for borrowers by stimulating competition among lenders and influencing interest rates.