Amortizing Security


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.

BREAKING DOWN '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.

  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. U.S. Savings Bonds

    A U.S. government savings bond that offers a fixed rate of interest ...
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