Mortgages

To a typical homeowner, a mortgage looks like the opposite of a bond. A future homeowner usually will sell a home mortgage to generate immediate cash to pay for a home, obligating him- or herself to make periodic payments to the mortgage holder The standard mortgage is structured so that equal monthly payments are made throughout its term, which contrasts to most bonds, which have a final payment equal to the face value at maturity Most standard mortgages allow for early repayment of the balance Hence from the mortgage holder's viewpoint the income stream generated is not completely fixed, since it may be terminated with an appropriate jump-sum payment at the discretion of the homeowner.

There are many variations on the standard mortgage. There may be modest-sized periodic payments for several years followed by a final balloon payment that completes the contract Adjustable-rate mortgages adjust the effective interest rate periodically according to an interest rate index, and hence these mortgages do not really generate fixed income in the strict sense

Mortgages are not usually thought of as securities, since they are written as contracts between two parties, for example, a homeowner and a bank However, mortgages are typically "bundled" into large packages and traded among financial institutions. These mortgage-backed securities are quite liquid

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