Negative Amortization
What is Negative Amortization? Negative amortization occurs when the principal amount on a loan increases gradually because the loan repayments do not cover the total amount of interest costs for the period. It occurs because borrowers are allowed to make reduced payments for a certain period within the term of the loan. Therefore, the payments...
Mortgage Bond
What is a Mortgage Bond? A mortgage bond is a type of bond secured by mortgages that is typically real estate or other real assets. The assets are also known as the collateral of the bonds. Holders of mortgage bonds can make claims on the collateral. If borrowers cannot repay their debts, bondholders can sell...
Average Life
What is Average Life? Average life is the length of time that each unit of unpaid principal is expected to remain outstanding. The average life of mortgages, bonds, and loans refers to the estimated time to pay principal through amortization or sinking funds. Some issued assets such as bonds include purchase funds that enable the...
Borrower's Capacity
What is Borrower’s Capacity? A borrower’s capacity is the borrower’s ability to make its debt payments on time and in full amount. It is one of the 5 C’s of Credit analysis, together with collateral, covenant, character, and conditions. Factors that Affect a Borrower’s Capacity A borrower’s ability to pay its debt obligations on time...
Comfort Letter
What is a Comfort Letter? A comfort letter is a document of assurance issued by a parent company or an accounting firm to reassure a subsidiary company of its willingness to provide financial support. It is an affirmation letter, not a confirmation letter, that offers backup when a customer requires a loan or a company...
