zero coupon financing A form of bond financing in which principal and interest payments are deferred until the bonds mature. The lender provides the mortgage money to the borrower and issues mortgage-backed zero coupon bonds to investors who are willing to wait until maturity for both repayment of interest and principal. The project thus defers amortization of its financing until the future when rent and inflation are assumed to make repayment more feasible. The Internal Revenue Services imputes interest under such circumstances which must be included in the taxable income of the investor each year, unless the bond is in some tax free status, such as an IRA.
zero percent mortgage, (ZPM) An interest-free mortgage with a short term, such as five years. To qualify for a ZPM, a buyer must make a substantial down payment, perhaps thirty-five percent. Under tax law, the homeowner is entitled to a ten percent interest deduction, and the seller is required to include a corresponding amount as interest income, due to the rules of imputed interest.
ZPM syn zero percent mortgage See zero percent mortgage.