eli5: what is a bond vs mortgage?
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A mortgage bond is an investment backed by a pool of mortgages that a lender trades to another party. A mortgage loan is a secured agreement between a lender and a borrower on a property. The borrower must repay the money they borrowed plus interest over a set period of time.
A bond is basically a formalized IOU. I give you X dollars, you give me a piece of paper saying that on Y date you will repay me X dollars plus Z% interest. When Y date comes along, I bring you back the piece of paper and you pay me.
A mortgage is a loan given for the purpose of buying something expensive (a house or other piece of real estate, almost always) with that piece of property as collateral. I give you X dollars to buy a house, and if you don’t pay me back, I’m allowed to take the house and sell it to get my money back.
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