Mortgage Bond (Pfandbrief)

Long-term bonds that are used to finance building loans.

Mortgage bonds are similar to bonds in form, and are issued by mortgage banks, ship mortgage banks, and public-sector credit institutions. Because they are collateralized with real estate, they are especially secure. A trustee ensures that mortgage bonds are always backed by mortgages of the same amount that carry at least the same interest rate.

As a rule, mortgage bonds have a long maturity, in some cases over 25 years. The holder of a mortgage bond cannot redeem it before the end of the term agreed upon. The borrower must begin repaying the principal at the latest when one-third of the maturity has elapsed. The redemption value of mortgage bonds may not exceed their face value.

Mortgage bonds are traded on the exchange in the Official market (Amtlicher Markt) segment. The name 'Pfandbrief' is registered.

Important regulations pertaining to mortgage bonds are contained in the (German Mortgage Bank Act (Hypothekenbankgesetz) , section 7, section 9 para. 1 no. 3., and section 41; and in the Mortgage Bond Act (Pfandbriefgesetz), sections 2 and 10.

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