Zero-Coupon Mortgage

Long-term commercial Mortgage that defers all payments of principal and interest until maturity. The loan is structured as an accrual note; interest due is rolled into the outstanding principal. At maturity, the borrower must either pay off the note or refinance at current interest rates. The lender arranging financing gets a discounted internal rate of return; the borrower can finance a commercial project with a smaller cash flow, on the expectation that appreciation of the property value over the life of the loan is sufficient to pay off the loan.