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.
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What is ‘Participation Mortgage’
A participation mortgage is a type of mortgage that allows the lender to share in part of the income or resale proceeds. The lender participates in the income of the mortgaged property beyond a fixed return, or receives a yield on the loan in addition to the straight interest rate.
Explaining ‘Participation Mortgage’
In a participation mortgage, the lender (mortgagee) is entitled to share in the rental or resale proceeds from a property owned by the borrower (mortgagor). The mortgage is evidenced by the bank or another fiduciary that has legal title to the mortgage and sells the fractional shares to investors or makes the investment for the certificate holders.
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