what is a mortgage bond

A mortgage bond is a type of bond that is secured by a pool of mortgages on real estate assets such as houses. Mortgage bonds are usually treated as a separate class, termed residential, and can pay interest in either monthly, quarterly, or semiannual periods. When a homeowner takes out a mortgage, the lender may sell the mortgage and add it to a pool of other mortgages, which is whats known as a mortgage bond. Lenders sell mortgage bonds to real estate investors, who receive periodic interest payments on mortgage loans until theyre paid off. In the event of a default situation, mortgage bondholders could sell off the underlying property backing a bond to compensate for the default. Mortgage bonds offer investors protection because the principal is secured by a valuable asset. Mortgage bonds are backed by real property, which makes them a low-risk investment.