Mortgage Bond Market
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Mortgage Bond Market refers to that bond market where the bonds exchanged between issuers and purchasers are secured by a mortgage on one or more than one assets. So, the Mortgage Bonds are actually asset backed. These assets are generally real estate property or real property. The Mortgage Bondholders that is the persons who purchases the bonds from Mortgage Bond Market have a claim on these assets in case of default. They have the right to sell the underlying asset and be compensated in case of any default on the part of the issuer.
Mortgage Bond Market refers to that bond market where the bonds exchanged between issuers and purchasers are secured by a mortgage on one or more than one assets. So, the Mortgage Bonds are actually asset backed. These assets are generally real estate property or real property. The Mortgage Bondholders that is the persons who purchases the bonds from Mortgage Bond Market have a claim on these assets in case of default. They have the right to sell the underlying asset and be compensated in case of any default on the part of the issuer.
Pros and Cons
In Mortgage Bond Market, an investor can get maximum safety and protection. As the principal amount invested is secured by an underlying asset which can be sold to cover the loss in case of default, the investors have to face minimum risk in the Mortgage Bond Market. But, being low risk, these Mortgage Bonds generally give lower rate of return compared to Corporate Bonds and other bonds which are high risk.
Mortgage Bonds are efficient capital provider because many people want to hold Mortgage Bonds, as they are low risk. So, companies can easily collect their required capital by issuing Mortgage Bonds in the Mortgage bond Market. If a company issues Mortgage bonds and other types of bonds for financing capital, then the holders of Mortgage Bonds enjoy preferential claims before other bondholders.
Basics
The Mortgage Bonds are always supported by collateral. The principal and interest payable to the Mortgage Bondholder generally comes from the general fund of the issuing company. The value of the collateral has to be greater than the outstanding principal of the mortgage bond. If the market value of the collateral that is if the market value of the underlying asset declines then the issuing authority has to arrange for additional collateral.As far as the issue of taxes is concerned, the mortgage bonds which are issued by companies and purchased by the investors are treated as debt of the issuing companies, not as their sale of assets.
Mortgage Bonds comes with a maturity period. On the date of maturity, the issuer has to pay the principal and the interest amount to the bondholders. If the issuer fails to do that, the case is considered to be a default one. But, if the required payments are made to the bondholders on maturity of the bond, the issuers become free of all liabilities and obligations to the bondholders.
