What is a Nonrecourse Mortgage?

A nonrecourse mortgage is a home loan that limits the amount of risk that the borrower and the lender are exposed to.

The only thing that a borrower can lose if he or she defaults on a nonrecourse mortgage is the collateral that he or she puts up to back the loan. If the borrower defaults, the lender cannot sue the borrower. The only thing that the lender can do is take the stated collateral. If the collateral is valued at a lower amount than the overall loan, the lender takes the chance that he or she will lose out if the borrower defaults.

Because nonrecourse mortgages are secured, they are offered at relatively reasonable rates. Nonrecourse mortgages are usually offered with interest rates that are one to two points lower than regular mortgages.

The borrower's credit history, income reports, and other financial data do not matter when applying for a nonrecourse mortgage. The only pertinent information is the value of the asset that will be used as collateral.