Participation mortgage
Encyclopedia
A participation mortgage or participating mortgage is a mortgage loan
, or sometimes a group of them, in which two or more persons have fractional equitable interests. In this arrangement the lender, or mortgagee, is entitled to share in the rental or resale proceeds from a property owned by the borrower, or mortgagor. The mortgage is evidenced by the bank or other fiduciary that has legal title to the mortgage and sells the fractional shares to investors or makes the investment for the certificate holders. A participation mortgage may or may not require principal and interest
payments and may or may not contain a balloon payment
.
For instance, John has a loan for a strip mall including six separate units. All are rented/leased and in addition to the principal and interest he pays to the lender, he is required to pay a certain percentage of the incoming funds. The lender is then participating in the income stream provided by the particular property.
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
, or sometimes a group of them, in which two or more persons have fractional equitable interests. In this arrangement the lender, or mortgagee, is entitled to share in the rental or resale proceeds from a property owned by the borrower, or mortgagor. The mortgage is evidenced by the bank or other fiduciary that has legal title to the mortgage and sells the fractional shares to investors or makes the investment for the certificate holders. A participation mortgage may or may not require principal and interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
payments and may or may not contain a balloon payment
Balloon payment
When a debt is repaid in payments of varying amounts there are some colourful jargon terms used to describe the different loan structures. The term balloon payment arises because if you hold back most of a debt and pay it only towards the end of the agreement, both those last payments and the total...
.
For instance, John has a loan for a strip mall including six separate units. All are rented/leased and in addition to the principal and interest he pays to the lender, he is required to pay a certain percentage of the incoming funds. The lender is then participating in the income stream provided by the particular property.
External links
- Participating mortgage loans: a historical cost paradox. | Environment & Natural Resources > Land Use & Development from AllBusiness.com, Business Resources, Advice and Forms for Large and Small Businesses. By Clifford H. Schwartz, Journal of Accountancy, July 1, 1992.