Tweet
In the US a mortgage note is a promissory note associated with a specified mortgage loan; it is a written promise to repay a specified sum of money plus interest at a specified rate and length of time to fulfill the promise. While the mortgage itself pledges the title to real property as security for a loan, the mortgage note states the amount of debt and the rate of interest, and obligates the borrower, who signs the note, personally responsible for repayment. In foreclosure proceedings in certain jurisdictions, borrowers may require the foreclosing party to produce the note as evidence that they are the true owners of the debt.
-
-
Determinants of mortgage type
For the most part, it is the mortgage note which determines the "type" of mortgage:
- if the note has a fixed interest rate and payments, then the loan is a Fixed Rate Mortgage (FRM) loan
- a fixed interest rate with adjusting payments is a Graduated Payment Mortgage (GPM)
- a floating interest rate and payment amount indicates an Adjustable Rate Mortgage (ARM)
- an amortization schedule longer than the maturity date indicates a balloon payment mortgage
- when the payment schedule calls only for interest and no principal, thus leaving behind the full principal due at maturity, the loan is an interest only loan
- a payment adjustment frequency less than the interest rate adjustment frequency implies a mortgage which allows for negative amortization
Mortgage notes as investments
Like bonds, mortgage notes offer investors a stream of payments over a period of time. Mortgage notes are traded on the secondary market whole or as part of a mortgage-backed security. Unlike bonds, mortgage note prices are quoted as a percentage figure, e.g. 95 for 95%.
Importance
In the United Kingdom, mortgage-related debt amounts to over £1 trillion. In the United States bond market, mortgage-related debt amounts to $6.5 trillion and accounted for 23% of the market as of December 31, 2006. $1.93 trillion of mortgage debt was issued on the US bond market in 2006; this is roughly the GDP of the United Kingdom, and is larger than any other debt category.
Quoted
Yorum