What is a Mortgage Bond?
A bond is similar to an IOU. An investor purchases a bond from a financial institution for a fixed amount of money. The financial institution then promises to give the money back years from that day with a small percentage of interest added to the original value. When a person purchases a house, he or she generally must borrow money from a bank or mortgage lending company. To borrow this money, the person must sign a promissory note stating he or she will pay back the value of the loan, plus a percentage of interest, which is accrued each month. Usually, a mortgage payment spans fifteen to thirty years and is paid back in monthly installations. To issues these loans, the mortgage lending company may need to “borrow” a large sum of cash from a larger financial institution. The mortgage lender offers a number of mortgage agreements in one lump-sum package to a financial institution, which issues a mortgage bond in return. With a mortgage bond, the larger financial institution “purchases”
A mortgage bond is based on an agreement in terms of which the Mortgagor borrows money from the Mortgagee and agrees to pass a mortgage bond over a specific immovable property in favour of the Mortgagee as security to the Mortgagee for the repayment of money. WHAT PROPERTY IS CAPAPABLE OF BEING MORTGAGED? All immovable property, improved or unimproved, which is registrable in a Deeds Office can be mortgaged. This includes a flat as well, if it is held under sectional title and is owned by the Mortgagor. WHAT ARE THE RIGHTS AND OBLIGATIONS OF THE MORTGAGOR? • Repayment of the loan. The Mortgagor must repay the capital debt and interest to the Mortgagee in terms of the loan agreement. The terms of repayment are contained in the agreement and the terms of repayment is normally 20 years. • Use of the property. The Mortgagee does not obtain the use and enjoyment of the mortgaged property as this is retained by the Mortgagor subject to certain restrictions e.g. the Mortgagor may not, without
• Great question. Remember that out in the market, whether you’re talking oil prices or mortgage rates, the relationship between the major indicators (say a barrel of oil) and the commodity itself (that gallon of gas) is often indirect. Such is the case with mortgage rates. As one of the many types of debt available to investors, mortgages are affected by the bond and treasury markets, but carry only an indirect relationship to them. As money moves in and out of the treasury markets for instance (investors chase profit in many different venues), the price of debt is driven up or down by demand (or lack thereof). In recent years, the real estate boom created a new market for debt — the mortgage backed security (MBS), or mortgage bond. In this process, investment banks take individual mortgages and bundle them together with thousands of others into a huge investment package ‘ a fund. The fund is then assigned a value (usually in the hundreds of millions) based on its secured assets (hom
