A mortgage bond is a type of bond that is secured by a pool of mortgages on a real estate asset such as a house. Bonds that are secured by the pledge of specific assets are called mortgage bonds. Mortgage bonds can pay interest in either monthly, quarterly or semiannual periods. When a homeowner takes out a mortgage, they repay the loan’s principal balance and make interest payments. Recurring interest payments can become a stable source of income for investors. Mortgage bonds offer the investor protection because the principal is secured by a valuable asset. In the event of default, mortgage bondholders could sell off the underlying property to compensate for the default and secure payment of dividends. Mortgage bonds tend to be safer than corporate bonds and, therefore, typically have a lower rate of return. Mortgage bonds provide several advantages to both borrowers and lenders. Holding a claim on real assets, the lenders of such bonds bear lower potential losses in the case of default. Mortgage bonds also allow less creditworthy borrowers to access larger amounts of capital at lower borrowing costs. Mortgage bonds can be securitized into financial derivatives and sold to investors, which provides more liquidity in the capital market and allows the transfer of risks.