Friday, 24 de November de 2017
PTEN

Understanding Investments in Mortgage Notes

Understanding Investments in Mortgage Notes:

 

Mortgage Backed Security (MBS)

What is it?
A Mortgage Backed Security is a bond issued by a securitization company, based on real estate credits (payments to be received relating to real estate sold under financing). Securitization agents “structure” these credits and transform them into bonds, which are then sold to investors who, in exchange, receive interest.
What is the remuneration?
The investments are remunerated in various ways, with fixed or variable return, while payments can be monthly, annual or at maturity. One example is remuneration based on the TR (Taxa Referencial – “Reference Rate”) plus an annual percentage.
What is the maturity?
These securities have an average life of five years, but can run up to seven years.
Advantages?
The securities are exempt of Income Tax, a fact that gives them a higher return than many fixed income funds.
Risks?
These lie in default on the real estate loans that serve as collateral for the MBS. In many operations there is also no guarantee of anticipated repurchase of the securities by the issuers.
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