Key Takeaways:

• Mortgage REITs generate high income by borrowing short and investing long, so their double-digit yields largely reflect interest-rate spreads amplified by leverage.
• Falling short-term rates and a steepening yield curve can support mREIT earnings, but funding costs, prepayments, and credit conditions remain key swing factors.
• Strategies vary widely across the mREIT universe, making diversified exposure through a vehicle like MORT a practical way to capture yield while limiting single-name risk.

The Federal Reserve has shifted back toward easing, prompting many income-focused investors to reconsider their options. When short-term rates decline, the search for yield often widens beyond traditional bonds. Mortgage real estate investment trusts, or mortgage REITs (mREITs), stand out because of their potential for high income. Yields in this segment have often been in the double digits, which explains why mortgage REITs frequently come to mind when investors seek to boost portfolio income.

Mortgage REIT Yields vs Other High Yield Investments

Source: FactSet and ICE Data Indices. Data as of 10/31/2025. Past performance is no guarantee of future results. Yield for Mortgage REITs, Equity REITs, Utilities Stocks, and U.S. Stocks represented by dividend yield. Yield for U.S. HY Bonds, U.S. IG Bonds, and 10 Yr Treasury represented by yield-to-worst. Mortgage REITs represented by MVIS US Mortgage REITs Index; U.S. HY Bonds represented by ICE BofA US High Yield Index; U.S. IG Bonds represented by ICE BofA U.S. Corporate Index; Equity REITs represented by FTSE NAREIT All Equity REITs Index; Utilities Stocks represented by S&P Utilities Index; U.S. Stocks represented by S&P 500 Index; U.S. 10 Yr Treasury represented by ICE BofA Current 10-Year US Treasury Index.

How Does a Mortgage REIT Make Money?

So where does that double-digit yield come from? In short, mortgage REITs earn income on interest rate spreads. They first obtain short-term funding, often through repurchase agreements, and then use that financing to purchase longer-term mortgage-related assets that pay interest. The difference between the interest earned on assets and the interest paid on funding is known as the net interest margin, which generates income that funds dividends to shareholders. Many mREITs also utilize leverage, borrowing several dollars for every dollar of equity, to convert a modest spread into a more substantial income.

Since mREITs typically borrow at short maturities and then invest in longer-dated mortgage assets, the curve of the yield market matters. When short-term rates fall, the cost of that funding usually declines, which can widen the spread between borrowing costs and the yields earned on assets. A steeper yield curve, where long-term rates sit above short-term rates, can be especially supportive because asset yields tend to follow longer maturities, while funding costs follow shorter ones. With the Fed easing again, these dynamics can be a constructive backdrop for mREIT business models.

The various types of assets owned by mREITs are also worth covering. Some focus on mortgage-backed securities guaranteed by agencies such as Fannie Mae and Freddie Mac, where credit risk is minimal. Others invest in non-agency or credit-sensitive mortgages that may offer higher yields. There are residential mortgage REITs that focus on home loans, and there are commercial mortgage REITs that originate or hold loans tied to office buildings, apartments, industrial properties, and other commercial segments. Some may also own mortgage servicing rights, which generate a fee for collecting monthly payments and are a source of revenue alongside interest income.

Are Mortgage REITs a Safe Investment?

While Mortgage REITs can offer high income, that income does come with certain trade-offs that are worth understanding before investing. The primary risks stem from fluctuations in interest rates, borrower behavior, and the ease with which firms can secure their short-term funding.

• Interest Rate Risk: Rapid or unexpected rate changes can impact book values, hedges, and the cost of financing. If short-term rates rise quickly, spreads can compress.
• Prepayment Risk: When homeowners refinance or pay off loans sooner, cash flows return earlier and must be reinvested at potentially lower yields.
• Credit Risk: REITs that own non-agency or commercial mortgages take on borrower credit risk. Economic weakness or property-specific stress can lead to losses.
• Rollover Risk: Since funding is short-term, borrowings must be rolled over frequently. If market liquidity tightens or lenders pull back, funding could become more expensive or harder to access.

Accessing mortgage REITs through a diversified portfolio can help mitigate some of these risks. Investors often turn to ETFs like the VanEck Mortgage REIT Income ETF (MORT) for convenient exposure to a diverse range of mortgage REITs without the need to maintain a roaster of individual holdings.

Mortgage REIT Strategies Differ

It is also important to note that the mREIT category is broad, and differences in strategy can result in significantly different outcomes. What each REIT owns, the amount of leverage it uses, and how it hedges interest rate exposure all influence dividend levels and volatility. For context, investors will see variation across several dimensions.

• Asset Mix: Residential versus commercial focus, agency versus non-agency exposure, and the degree to which mortgage servicing rights are used as a stabilizing, fee-like component.
• Hedging Approach: The use of swaps, futures, and options to manage interest rate sensitivity can differ significantly.
• Leverage: Target leverage and capital buffers shape both income potential and downside risk.
• Other factors, such as geographic concentration, borrower types, and sector preferences within commercial real estate, can also matter.

Evaluating all of these factors across dozens of REITs can be time consuming, which is why some investors prefer a diversified vehicle.

How to Invest in Mortgage REITs with an ETF

The VanEck Mortgage REIT Income ETF (MORT) provides diversified access to a broad range of U.S. mortgage REITs through a single ticker. MORT’s portfolio approach helps spread company-specific and strategy-specific risks, while preserving the key reason investors look at the space in the first place: the potential for elevated income. It also offers the convenience, transparency, and trading flexibility of an ETF wrapper, making it a practical entry point for investors seeking exposure to mortgage REITs without the need to build and maintain a portfolio of individual holdings.

The VanEck Mortgage REIT Income ETF (MORT) seeks to replicate, before fees and expenses, the price and yield performance of the MVIS US Mortgage REITs Index, which is designed to track the overall performance of U.S. mortgage real estate investment trusts.

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