A mortgage bond is a registered, transferable debt security which may only be issued by a mortgage bank. Mortgage bonds most closely resemble long-term government bonds, since they are almost as safe investments as government bonds.
Nevertheless, they do differ fundamentally from both government securities as well as ordinary corporate or bank bonds. This is because mortgage bonds are backed by special collateral, the permanent existence of which is checked and verified by the renowned property supervisor of UniCredit Jelzálogbank Zrt. (hereinafter: UCJ). A mortgage bond may not be issued without the stamp of the Property Supervisor.
Mortgage bonds are backed by ordinary and additional collateral. Ordinary collateral is the amount of capital repayments and interest secured with adequate mortgage rights on real estate in Hungary and derived from loans disbursed by UCJ and its partner banks. The strength of a mortgage bond is indicated by the fact that the additional collateral, which supplements the ordinary collateral, may only consist of assets guaranteed by the state. Such as:
The ordinary and additional collateral and other assets of the bank may only be used to satisfy the receivables of mortgage bondholders. This means that mortgage bondholders enjoy absolute priority over all of the bank's creditors.
UCJ issues both short-term and long-term mortgage bonds. The short-term instruments generally expire after 1 year, with most of them staying off the stock exchange. These mortgage bonds can be purchased by retail investors in the branches of the trader, UniCredit Bank Hungary Zrt., where depending on the supply they are generally always available to interested investors. The term for long-term bonds listed on the stock exchange is normally 5-10 years.
Mortgage bonds can bear fixed or floating interest, i.e. even in times of slowing inflation and falling deposit interest rates they can still pay out guaranteed high yields for a long time. The interest is paid once a year by UCJ.
The capital repayment is made in one lump sum at the end of the term.
The nominal value of a mortgage bond is HUF 10,000, and therefore they can be purchased with a small investment too.
Mortgage bonds are dematerialised securities. This means that they are not printed and instead are kept on securities accounts.
Why is it worthwhile to buy mortgage bonds?