What is a Mortgage?

A mortgage is a loan secured by real property. The property itself serves as collateral for the debt; granting the lender the right to foreclose and sell the property if the borrower fails to meet repayment obligations.

How a Mortgage Works

A mortgage allows the borrower to acquire a property without paying the full purchase price in cash. The lender provides a loan secured by a lien on the property, which gives the lender a legal claim against the asset. The mortgage documentation includes a promissory note (the promise to repay) and a mortgage deed (the lien on the property).

These documents are typically recorded in the county clerk's office, creating a public record of the lender's claim against the property.

The borrower repays the loan over time through scheduled payments of principal and interest. If the borrower defaults, the lender can foreclose, take possession of the property, and sell it to recover the outstanding debt.

Mortgage terms define the interest rate (fixed or variable), the amortization period, the loan term, prepayment provisions, and any covenants the borrower must satisfy during the loan's life.

Mortgage Debt in Real Estate Capital Stacks

Mortgage debt occupies the senior position in a property's capital stack. It has first claim on the property's cash flows and first claim on the asset in a foreclosure scenario.

The leverage multiplier is the mechanics of how debt affects returns. If a property generates 5% cash-on-cash return with all equity, but the property can be financed with 65% debt at 5% interest, the equity return can increase dramatically. This is because debt is cheaper than equity (the lender accepts lower returns in exchange for priority claim).

Senior debt carries the lowest risk in the stack, it commands the lowest return. Equity investors sit above the mortgage in risk and below it in payment priority.

The amount of mortgage debt relative to property value is measured by the loan-to-value ratio. The property's ability to service the mortgage from operating income is measured by the debt service coverage ratio.

Mortgages in SPV Structures

When a property is held in an SPV, the mortgage is held at the entity level. The SPV is the borrower, and the property owned by the SPV is the collateral. This structure ring-fences the debt obligation within the SPV, meaning the mortgage on one property does not create a claim against other assets or other SPVs in a multi-asset portfolio.

For investors holding tokenized ownership interests, the SPV-level mortgage is a senior claim that gets paid before any distributions reach equity holders. The terms of the mortgage directly affect the cash flow available for distribution.

Mortgage at Node Proptech

Where a Node SPV carries mortgage debt, the loan terms, LTV, DSCR, and lender identity are disclosed in the Private Placement Memorandum.

Investors can review the debt structure before committing capital and track debt service performance through ongoing asset-level reporting. The ring-fenced SPV structure ensures that mortgage obligations on one property do not affect other Node offerings.