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. Surrender Period

    The amount of time an investor must wait until he or she can ...
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. Retirement

    What is a Ginnie Mae security?

    A Ginnie Mae, or Government National Mortgage Association security, functions similarly to the process of lending someone money to purchase a house or business. Ginnie Mae buys home mortgages ...
  3. Investing Basics

    The Most Popular Bitcoin Mining Software

    Success at mining bitcoins depends on the combination of time, knowledge, computer hardware and the complementary software.
  4. Mutual Funds & ETFs

    What is the difference between a hedge fund and a private equity fund?

    Learn the primary differences between hedge funds and private equity funds, both of which are utilized by high net worth investors.
  5. With stocks surging, financial advisers and their wealthy clients are asking why they should continue to bother with poorly performing alternatives.
    Professionals

    Are Advisors Off Alternatives?

    With stocks surging, financial advisers and their wealthy clients are asking why they should continue to bother with poorly performing alternatives.
  6. Mutual Funds & ETFs

    Where does a hedge fund get its money?

    Learn how a hedge fund is structured and how the managing partner of the fund goes about the process of finding and soliciting investors.
  7. Investing Basics

    Putting Your Retirement Eggs in Several Baskets

    When trying to reduce the volatility of one's investments, it's good to diversify by varying one's portfolio assets or doing some alternative investing.
  8. bitcoin
    Investing Basics

    Medici, The Blockchain Stock Exchange

    Overstock CEO Patrick Byrne's revolutionary Project Medici would list Overstock securities on a blockchain-based exchange--a turning point for Bitcoin?
  9. Investing Basics

    The 5 Most Important Virtual Currencies Other Than Bitcoin

    Bitcoin's success has spurred the launch of many virtual currencies. Here are some of the more popular ones.
  10. Options & Futures

    Writing Covered Calls On ETFs

    The strategy of writing covered calls on ETFs can limit your losses and hedge risk, but they cap your upside potential.

You May Also Like

Hot Definitions
  1. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  2. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  3. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  4. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  5. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  6. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
Trading Center