What distinguishes the primary mortgage market from the secondary mortgage market?

The primary mortgage market is defined by the process of loan origination, where borrowers obtain loans directly from lenders. This is where individuals or businesses apply for mortgages and negotiate terms, including the interest rate and repayment schedule. In contrast, the secondary mortgage market facilitates the buying and selling of existing mortgage loans. Lenders may sell these loans to investors to free up capital, allowing them to originate more loans. This market plays a crucial role in providing liquidity to the mortgage system, enabling lenders to continue offering loans to borrowers.

Understanding this distinction is key to grasping how the overall mortgage system functions. The primary market is essential for direct borrowing, while the secondary market enhances the availability of funds for future borrowers. The incorrect choices might suggest either a role or function of one market that overlaps with the other, such as confusion regarding the activities involved in each market or regulatory aspects that apply uniquely to each.