Amortizing Security

AAA

DEFINITION of 'Amortizing Security'

A class of debt security in which a portion of the underlying principal amount is paid in addition to periodic interest payments to the security's holder. The regular payment that the security holder receives is derived from the payments that the borrower makes in paying off the debt.

INVESTOPEDIA EXPLAINS 'Amortizing Security'

Mortgage-backed securities (MBS) are one of the most common forms of amortizing security. With an MBS, the monthly mortgage payments that mortgagors make are pooled together and are then distributed to MBS holders. Depending on the way in which a security is structured, holders of these investments may be subject to prepayment risk, as it is not uncommon for the underlying borrower to prepay a portion, if not all, of the debt's principal. In the event that prepayment occurs, the investor will receive the rest of the principal and no more interest payments will occur.

RELATED TERMS
  1. Amortization

    1. The paying off of debt in regular installments over a period ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Prepayment Risk

    The risk associated with the early unscheduled return of principal ...
  4. Mortgagor

    An individual or company who borrows money to purchase a piece ...
  5. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
  6. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
RELATED FAQS
  1. What is a Ginnie Mae security?

    A Ginnie Mae, or Government National Mortgage Association security, functions similarly to the process of lending someone ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

    Mortgage-backed securities can offer monthly income, a fixed interest rate and even government backing.
  2. Investing

    What’s The Essence Of Smart Beta In Fixed Income?

    In essence, smart beta strategies seek to re-write index rules to capture factors, such as value, quality, or low volatility, in their stock portfolios.
  3. Investing

    Is It Possible To Trade Bitcoin Options?

    Options trading in bitcoins is a good way to insure or hedge one's risks or earn profits from volatility and speculation, but there still are risks.
  4. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.
  5. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.
  6. Mutual Funds & ETFs

    Is the TLT ETF a Good Bet for the Long Run?

    Is the iShares 20+ Year Treasury Bond ETF (TLT) a good bet for the long run?
  7. Bonds & Fixed Income

    African Equities vs. Bonds: Risks and Rewards

    A look at the risks and rewards of exposure to African equities vs. bonds.
  8. Bonds & Fixed Income

    How Rate Hikes Will Affect Your Investments?

    An interest rate hike by the Fed, which will happen either during their June or September meeting, could impact your fixed income investments.
  9. Professionals

    Is Now the Time for Junk Bonds?

    A bet on high-yield bonds is a bet that the global economy will continue to improve...but not too much.
  10. Investing Basics

    What Is Cold Storage For Bitcoin And Why Does It Matter?

    With increasing incidents of hacking in the world of digital currency, cold storage offers a safe place for the cryptocurrency owners.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center