DEFINITION of 'Mortgage Subsidy Bond'

One of the few types of municipal bonds ever issued that may be subject to taxation, provided that the funds raised were used for home mortgages. Mortgage subsidy bonds were issued by cities and other municipalities, and may be either taxable or tax-free.

BREAKING DOWN 'Mortgage Subsidy Bond'

Mortgage subsidy bonds were created by the Mortgage Subsidy Act of 1980. They are issued by either state or local governments and are usually taxable. The exceptions are a select group of mortgage bonds and veterans' bonds.

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