Zero-Coupon Mortgage

AAA

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.

INVESTOPEDIA EXPLAINS '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. Mortgage Application

    A document submitted by one or more individuals applying to borrow ...
  2. Zero-Coupon Bond

    A debt security that doesn't pay interest (a coupon) but is traded ...
  3. Zero-Coupon Convertible

    A fixed income instrument that is a combination of a zero-coupon ...
  4. Conventional Mortgage

    A type of mortgage in which the underlying terms and conditions ...
  5. Discount

    The condition of the price of a bond that is lower than par. ...
  6. Pure Discount Instrument

    A type of security that pays no income until maturity; upon expiration, ...
Related Articles
  1. Home & Auto

    7 Steps To A Hot Commercial Real Estate Deal

    For savvy real estate investors, times of lower prices reveal investment opportunity.
  2. Mutual Funds & ETFs

    Financial Institutions: Stretched Too Thin?

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

    Find Fortune In Commercial Real Estate

    Investing in big buildings means big money - and bigger risks.
  4. Options & Futures

    Defeasance Reduces Commercial Real Estate Fees

    Try this alternative to short-term variable-rate financing when using leverage to buy property.
  5. Home & Auto

    Where are home values falling the fastest in the US, and why?

    Learn about the metropolitan areas in the United States experiencing the largest drops in median single family homes values in 2014 and the reasons behind it.
  6. FHA mortgages offer flexibility and low down payments, though they're often pricier than traditional loans backed by private mortgage insurance.
    Credit & Loans

    Before You Choose An FHA Mortgage: 7 Key Points

    FHA mortgages offer flexibility and low down payments, though they're often pricier than traditional loans backed by private mortgage insurance.
  7. 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.
  8. Home & Auto

    How did the ABX index behave during the 2008 subprime mortgage crisis?

    Read about the disastrous performance of the various ABX indexes in the subprime mortgage crisis of 2008 during the middle of the Great Recession.
  9. FHA loans are often a good alternative for those who have trouble obtaining a conventional mortgage, although you do have to pay an insurance premium.
    Home & Auto

    Mortgage For A Manufactured Home? Try The FHA

    FHA loans are often a good alternative for those who have trouble obtaining a conventional mortgage, although you do have to pay an insurance premium.
  10. Mutual Funds & ETFs

    How do traders use the ABX index?

    Learn about some of the ways traders, banks and even hedge funds have traditionally used the ABX indices to make bets on mortgage-backed securities.

You May Also Like

Hot Definitions
  1. Deferred Revenue

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

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

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

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. 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 ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center