Confused at some definitions (1 Viewer)

[Zeref]

Mortgages are loans secured by the property of the borrower, and that property cannot be sold or used as security for further borrowing until the mortgage is repaid. They are used to finance property purchases and are usually repaid through regular payments over an agreed period. Due to there being less risk in this method of financing, interest rates are lower.

Debentures are issued by a company for a fixed rate of interest and for a fixed period of time, offering security to the lender over the company’s assets. Debentures are prominently used by finance companies to borrow money that they could relend at a much higher interest rate.

What are the differences between the two? I can't seem to find a clear distinguishing factor.

Rights issue is the privilege granted to shareholders to buy new shares in the same company, usually at a discount to the market price.

A share purchase plan is an offer to existing shareholders in a listed company an opportunity to purchase more shares in that company without brokerage fees, being a cheap and easy way to raise additional finance. Additionally, the business can offer a discount.

Same issue for this as well.

 

[enigma_1]

I've got the same problem, I just don't get it. My teacher said to just rote learn it. but there's no point if it doesn't make sense

 

[Zeref]

I've got the same problem, I just don't get it. My teacher said to just rote learn it. but there's no point if it doesn't make sense

Lol yeah, it might screw you over in MC or short answers (especially the ones where you have to link it back to the company in the scenario).

 

[nerdasdasd]

I'll help you guys out.

 

[bongoli]

A debenture is secured by a floating charge, ie the company agrees to put up assets as security but the charge only crystalises when the lender decides to call in his loan, eg on insolvency, and thus ranks before unsecured debtors for funds when the company is liquidated. A mortgage on the other relates to a particular asset, generally land or buildings. When the debt is called in the lender gets the proceeds of the sale of the asset and is an unsecured creditor for any shortfall. In the case of liquidation, mortgage creditors take preferences over debentures. Debentures can also be converted to shares but a mortgage cannot. Personally don't think that markers are going to chuck that in haha; they can't be too anal retentive over similar things, can they?

 

[nerdasdasd]

In most cases, mortgages are obtained from banks, and are often used to finance properties. Security (houses, or any assets), can be claimed from the banks if you cannot pay back the loan. Debentures are long term loans obtained from offering an prospectus on the securities exchange. Debentures are often unsecured, so if the company cannot pay back the debentures, they do not have to forfeit assets. Furthermore, organisations do not give out debentures, but it is obtained via the ASX.

 

[Zeref]

Bongoli and nerd's definition contradict each other a tiny bit :L
But nothing major, thanks for the help

What about the other question?

 

[seremify007]

Mortgages are loans secured by the property of the borrower, and that property cannot be sold or used as security for further borrowing until the mortgage is repaid. They are used to finance property purchases and are usually repaid through regular payments over an agreed period. Due to there being less risk in this method of financing, interest rates are lower.

Debentures are issued by a company for a fixed rate of interest and for a fixed period of time, offering security to the lender over the company’s assets. Debentures are prominently used by finance companies to borrow money that they could relend at a much higher interest rate.

What are the differences between the two? I can't seem to find a clear distinguishing factor.

Without really reading into your definitions too much, I feel they have very different purposes. A mortgage is typically to purchase a specific asset (e.g. a house) whereby the house is the collateral/security which the lender has an interest in. That is, if the borrower defaults, the bank gets the house and minimises their losses. A mortgage is more to the benefit of the borrower (i.e. it enables them to borrow money to buy something they don't have cash for).

A debenture is a form of debt for a company like a note or a bond. It may be secured against assets of the company but doesn't have to be. The holder of a debenture (i.e. the lender) can trade the debenture to another party thus maintaining their liquidity. The key thing here is it's a form of raising finance for a company without diluting equity interests (since it's debt), and because the debt can be transferred/traded, it does not need to compensate the lender for such a risk and hence there's a lower interest rate (to the benefit of the borrower).

I'm also going to guess that a debenture being a form of note, will have a fixed rate of interest for the coupon payments (e.g. 5%) whereas the mortgage could have a variable interest rate linked to either an observable market rate or a published rate of the lender.

 

[seremify007]

In most cases, mortgages are obtained from banks, and are often used to finance properties. Security (houses, or any assets), can be claimed from the banks if you cannot pay back the loan. Debentures are long term loans obtained from offering an prospectus on the securities exchange. Debentures are often unsecured, so if the company cannot pay back the debentures, they do not have to forfeit assets. Furthermore, organisations do not give out debentures, but it is obtained via the ASX.

I think you may have the debentures holders right to assets a bit off- unlike a mortgage where there's a specific asset which is being used as security for a specific loan, a debenture may not be secured against a specific asset (although a fixed charge is possible), and hence the lender will have the same rights to the assets as any other liability holder in the creditor ranking (unless they're senior debenture holders).