Best Mortgage Stocks for 2026 and How to Invest

Mortgage REITs, or mREITs, provide real estate financing by originating or purchasing mortgages, mortgage-backed securities (MBS), and other real estate-backed loans. They are an essential part of the residential mortgage market, helping to finance about 1 million homes in the United States each year. They also support the commercial real estate sector by providing loans to develop, acquire, reposition, and own income-producing properties.

Here's a closer look at the overall mortgage REIT market and the sector's unique risks. Plus, we'll discuss a couple of interesting mREITs you might want to consider.

3 top mortgage REITs for 2026

There are several dozen mREITs, and many have underperformed the S&P 500 over the past few years due to fluctuating interest rates. However, a few mREITs stand out as compelling candidates in this volatile sector and could be worth a look for patient investors who want high income streams.

Benefits and risks of investing in mortgage REITs

Benefits:

• High dividend yields: Mortgage REITs typically offer very high dividend yields, providing investors with the potential to earn lucrative passive income.
• Lower risk real estate exposure: Mortgages and real estate-backed loans tend to be less risky real estate investments.
• Diversification: Investing in REITs can help diversify your portfolio. Mortgage REITs provide exposure to both the real estate and fixed-income asset classes.

Risks:

• Interest rate risk: While changes in interest rates affect REITs overall, they have an even greater effect on mREITs because short- and long-term rate changes can affect net interest margins by increasing funding costs and reducing interest income. Interest rate changes can also affect the value of an mREIT's mortgage assets, affecting its net asset value and share price.
• Prepayment risk: Mortgage borrowers can refinance their loans or sell the underlying real estate. When that happens, it forces the mREIT to reinvest the repaid loan proceeds at the prevailing interest rate, which might be lower than the rate on the existing mortgage.
• Credit risk: Mortgage REITs focused on commercial mortgages can face credit risks if borrowers default. Mortgage REITs that focus on residential loans backed by government agencies don't have to worry about this nearly as much.
• Rollover risk: Residential mortgage REITs tend to own long-term mortgages and mortgage-backed securities. However, they often fund these purchases with shorter-duration borrowing since short-term interest rates are generally lower than long-term rates. This funding strategy creates rollover risk. The mREIT must obtain funding at attractive rates to roll over loans as they mature.

Should you invest in mortgage REITs

Mortgage REITs can generate a significant net interest margin when there's a wide spread between short-term interest rates (where they borrow) and long-term interest rates (where they lend). Unfortunately, the spread doesn't usually stay wide for long, which is why mREITs tend to be very volatile.

Because of that risk, mREITs aren't always the best option for investors seeking a sustainable income stream, since their high-yielding dividends are at a high risk of future reductions. However, a few mREITs are worth considering for more risk-tolerant income investors since their differentiated business models help insulate them from the sector's overall volatility.

FAQ