A mortgage bond is a bond that is backed by a mortgage/pool of mortgages such as real estate property or other tangible assets. The assets are considered as collaterals of the bond. The mortgage bondholders have the right to stake claims over these collaterals.
*Mortgage bonds involve less risk for an investor because a valuable asset in these bonds backs the principal amount. In default cases, the bondholder can sell off the underlying assets to adjust for the default and ensure dividends since mortgage assets
*A major drawback of mortgage bonds is that they offer lower yields to the bondholders as securitisation of mortgages makes mortgage bonds safer investments.
*Mortgage bonds are generally seen as a safe investment option because they are backed by real property. For example, if a homeowner who has borrowed money from a bank or any other financial institution defaults on loan or cannot repay the borrowed amount, the property .
*Mortgage bonds carry less risk as the US government also backs them. This makes them appealing to those investors who are looking for sustainable growth in their income.