Housing Bonds

Posted in Finance, Accounting and Economics Terms, Total Reads: 297
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Definition: Housing Bonds

Housing Bonds is a type of short term or long term bond issued by the state or the local government to finance the construction of affordable housing development.


Explanation:

Thus housing bonds are a kind of debt securities which are raised by the government for the construction or rehabilitation of affordable rental housing. At times under different programs, these bonds can be used for raising funds for helping the low income individuals and families purchase a home.

In addition to the principal amount, the government is supposed to pay interest on the principal as well. The total amount is paid by the government from the general tax fund or by raising the rates in other forms of taxes like the sales tax, property tax, and income tax etc. The interest on these bonds is usually low. Also the interest is tax free in the hands of investor as these are a type of municipal bonds. The lower interest rates are compensated by the tax free income for the investors.


Precaution:

Investor buying these bonds should take a close look at the ratings of the individual bond issues, private third party insurers and the municipality borrowing the money.


Advantage:

Through the issue of housing bonds both the government as well as the investors benefit. The government benefits as it gets cheap source of funding, whereas investor benefits by getting tax free income in hand.

Disadvantage:

The investor gets a low rate of interest. The government finds it difficult to raise funds using housing bonds as the housing bonds are getting unpopular with the investors.

 

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