Amortizing Security

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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.

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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 >>
  2. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
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    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
  4. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
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    American depositary receipts (ADRs) are bought and sold on regular U.S. stock exchanges, either in the over-the-counter market ... Read Full Answer >>
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    Municipal bonds are backed by dedicated taxes or revenue sources related to specific projects, or by the full faith and credit ... Read Full Answer >>

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