The section covers

• Definition of mortgages
• Definition of index-linked mortgages
• Definition of staggered mortgages
• Rule

Definition of mortgages

A mortgage is a document containing an agreement on a charge. The charge entitles the mortgage creditor to consideration.

The charge ensures that the owner can seek satisfaction in the mortgaged capital value before other creditors. The mortgagor thus has a limited right of disposal of the asset mortgaged.

The mortgaged capital asset may, e.g., be real property, a registered ship or aircraft.

A mortgage where the outstanding debt is index-linked is a mortgage the principal amount, outstanding debt and interest of which are regulated in accordance with a specific index.

A staggered mortgage is characterised by the fact that the nominal interest changes in jumps on one or more dates agreed on in advance during its maturity. The interest will normally be highest at the beginning and lowest at the end of the maturity.

The yields from all types of mortgages must be included in the basis of taxation under Sections 3, 6 and 7 of PAL, including yields on the so-called staggered mortgages and mortgages with index-linked outstanding debt. Both interest income and gains and losses on mortgages must be included in the basis of taxation.

Gains or losses on mortgages are determined according to the inventory principle, see Section 15(3) of PAL. See also section C.2.2, Determining the basis of taxation according to the inventory principle.

Interest income is determined under the provisions set out in Section 15(1) of PAL. See section C.2.3.1, Interest income.