DEFINITION of 'Zero-Coupon Mortgage'

A form of commercial financing in which regular interest and principal payments are deferred until maturity, rather than paid over the course of the loan. While the coupon rate on such a mortgage is technically zero because there are no regular coupon or interest payments, interest accrues and is rolled into the principal amount at maturity.

BREAKING DOWN 'Zero-Coupon Mortgage'

Zero-coupon mortgages are especially useful for commercial projects where cash flows to service debt may not be available until the project nears completion. As total interest plus principal repayment is only received by the lender when the loan matures, the credit risk is significantly higher than with a conventional loan. As such, lenders may only offer this form of financing to established commercial borrowers with pristine credit records.

RELATED TERMS
  1. Principal

    Most often the amount borrowed on a loan, or put into an investment, ...
  2. Non-Amortizing Loan

    A type of loan in which payments on the principal are not made, ...
  3. Deferred Interest Bond

    A debt instrument that pays interest only upon maturity. Unlike ...
  4. Deferred Interest Mortgage

    A mortgage loan that allows the borrower to make minimum payments ...
  5. Accelerated Amortization

    Extra payments made towards paying down a mortgage principal. ...
  6. Reverse Mortgage Net Principal ...

    The amount of money a reverse mortgage borrower can receive from ...
Related Articles
  1. Personal Finance

    Understanding the Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  2. Investing

    Comparing Yield To Maturity And The Coupon Rate

    Investors base investing decisions and strategies on yield to maturity more so than coupon rates.
  3. Personal Finance

    ‘Retired’ Too Soon? How to Reenter the Workforce After 50

    Here's what you need to know to survive financially and reenter the workforce when you're over 50 and a layoff has forced you to "retire" too soon.
  4. Personal Finance

    How Interest Rates Work On A Mortgage

    A step-by-step explanation of the interest calculations, mortgage types, and how the loan is eventually "retired" – which means paid off.
  5. Investing

    Financial Institutions: Stretched Too Thin?

    Find out how to evaluate a firm's loan portfolio to determine its financial health.
  6. Investing

    What's a Maturity Date?

    Maturity date is the final date when any remaining principal and any unpaid interest are due on a debt.
  7. Investing

    Understanding The Mortgage Payment Structure

    While a mortgage’s size and term set the baseline, the interest, taxes and insurance all influence the amount of the monthly payment.
RELATED FAQS
  1. Why Do Most of My Mortgage Payments Start Out as Interest?

    When you make a mortgage payment, the amount paid is a combination of an interest charge and principal repayment. Over the ... Read Answer >>
  2. How do I calculate yield to maturity of a zero coupon bond?

    Find out how to calculate the yield to maturity for a zero coupon bond, and see why this calculation is more simple than ... Read Answer >>
  3. When capitalizing interest, will interest accrue while you are in a deferment?

    Learn what capitalized interest is. Understand why interest accrues while a person is in a deferment, based on capitalized ... Read Answer >>
  4. Why is more interest paid over the life of a loan when it is capitalized?

    Learn what it means to capitalize interest on a loan. Understand why more interest is paid over the life of a loan when it ... Read Answer >>
Hot Definitions
  1. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  2. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  3. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  5. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  6. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
Trading Center