Mortgage backed securities (MBS) are usually among the safest investments you can make, because almost all are guaranteed by the government. This type of security is issued primarily by one of three agencies: the Government National Mortgage Association (known as Ginnie Mae), the Federal Home Mortgage Corporation (known as Freddie Mac), and the Federal National Mortgage Association (known as Fannie Mae).

An MBS is an instrument that represents a group of mortgages. They are traded actively, and because most of them are backed or sponsored by government agencies, they are considered as safe as treasury securities, holding little credit risk. They can be expensive to buy compared to other securities, and they have no tax advantages, but they are usually a guaranteed source of income, one that gets paid out every month.

MBS holders are paid the cash flow from the principal and interest of the mortgages, minus a servicing fee. The biggest risk in an MBS is a mortgage holder paying off their mortgage early through prepayment. In this event, MBS holders do not receive the counted-on interest payments on the mortgage.