Equity Participating Mortgage

Definition of "Equity Participating Mortgage"

An equity form of financing in which the lender and the borrower undertake a joint investment and agree to a future division of profit (or losses) according to specified shares. Thus, the lender participates in the income, the residual or both. The mechanism is simple: the lender lends money to the borrower in exchange for a pre-determined share of the profit (or losses) earned in the enterprise plus a portion of tax benefits for which the enterprise would be eligible. The finance is provided to purchase a real estate, which is held in mortgage by the financier. Such a form of mortgage financing is unique in the field of real sector investment. In the Unites States, entities such as Real Estate Investment Trusts (REITs), Real Estate Limited Partnerships (RELPs) and pension funds invest in equity participatory mortgages.