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Whole Loan


A whole loan is a type of financial contract in which a lender sells the rights and obligations of a loan portfolio directly to an investor. This transaction is made for the entire unpaid principal balance, and the lender’s rights to the repayment of the entire loan are transferred. Whole loans are commonly used in the mortgage industry.


The phonetics of the keyword “Whole Loan” is: /hoʊl loʊn/

Key Takeaways

  1. Definition: Whole Loan is a single loan that a lender has issued to a borrower. Many lenders and investors buy these as a way of making profits. They are different from fractional loans, where several investors invest a portion of the funds a borrower receives.
  2. Risk and Reward: The risk involved in buying a whole loan is higher since the investor has all their funds in a single investment, compared to fractional loans where the risk is spread. However, the potential returns on this investment can also be significantly higher if the borrower repays their loan as per the agreement.
  3. Market: The whole loan market is an active secondary market where investors can buy and sell their investments based on their risk tolerance and investment strategy. They contribute to improving liquidity in the market.


Whole Loan is a significant term in the business and finance field as it refers to a single loan that a lender has issued to a borrower. Many investors are interested in purchasing these loans as a type of investment, primarily because they offer the potential for earning a significant return. This term is often utilized in the secondary mortgage market, where loans are bundled and sold to investors. The attractiveness of whole loans lies in their potential for customization; investors can choose specific loans with certain attributes such as interest rate, principal amount, and risk level to match their investment strategy. Therefore, understanding the concept of the whole loan allows investors to undertake informed decision-making and financial planning to maximize returns.


Whole loans serve a significant role within the financial sector by providing a means for banks and other financial institutions to sell loans off their balance sheets. This sale is typically conducted in a secondary market and can free up a considerable amount of capital that the institution can then use to make further loans. By selling a whole loan, the lender transfers the risk of default to the buyer, which makes this financial instrument particularly useful for managing risks associated with lending. Whole loans are extensively used in the mortgage industry. For example, a bank might sell residential or commercial property loans, allowing other investors to buy these loans as whole loans. Investors who purchase these whole loans then can earn the interest payments made by the borrowers, essentially stepping into the bank’s shoes as the lender. If the borrower defaults on the loan, however, the investor who owns the whole loan takes on the loss. Therefore, whole loans also play an important part in distributing the risks and rewards associated with lending across a broader part of the financial system, rather than being concentrated in a single institution.


1. Mortgage Whole Loan: This is the most common instance of a whole loan seen in real world finance. A mortgage whole loan is where a lender creates a mortgage and a borrower agrees to repay the mortgage amount plus interest over a specific period. The mortgage lender holds ownership of the entire loan amount and receives all the repayments until the mortgage is either sold or paid off in full by the borrower. The Bank of America, for example, might provide this type of loan to a client for the home purchase.2. Sale of Whole Loan: A lending institution may choose to sell a whole loan to another company or investor. For example, lendingClub, an online peer-to-peer platform, sells whole loans to institutional investors. These investors then purchase these loans, thus effectively ‘moving’ the debt from the original lender to themselves. This can free up capital for the original lender to advance more loans, or it may form part of a risk diversification strategy.3. Commercial Whole Loan: This application can be seen in business and commercial settings. For instance, a bank such as JPMorgan Chase could extend a whole loan to a corporation for the purposes of business expansion or project financing. The terms for repayment would be similar to a mortgage, but the loan itself might be used for various purposes such as purchase of equipment, acquisition of a smaller company, etc. The bank holds the rights to the full loan and receives the full repayment unless the loan is sold or paid off.

Frequently Asked Questions(FAQ)

What is a Whole Loan?

A Whole Loan is a financial term describing the total mortgage loan that a lender typically loans a borrower. This loan includes various elements like principal and interest.

Can a whole loan be sold in the secondary market?

Yes, a whole loan can be sold on the secondary market as a way for lenders to free up capital to make additional loans.

What components are included in a whole loan?

A whole loan includes the principal amount owed, the interest on that principal, and may include other fees or charges as deemed appropriate by the lender.

How does a borrower pay off a whole loan?

A borrower pays off a whole loan through regular payments made over a predetermined period. These payments typically include portions of the loan’s principal and the accrued interest.

Does a whole loan apply only to mortgages?

No, while whole loans often refer to mortgages, the term can also be applied to any type of debt where the totality of the loan, including principal, interest and fees, is included.

Who benefits from whole loans?

Both parties can potentially benefit. Lenders can minimize risk and free up funds by selling the loan in the secondary market, while borrowers can often secure more favorable terms, like a lower interest rate, due to increased competition among lenders.

Can the terms of a whole loan be modified?

Yes, depending on the agreement between the borrower and the lender, the terms of a whole loan may be modified. This alteration could be due to refinancing, loan modification, or a change in the borrower’s financial circumstances.

What happens if a borrower defaults on a whole loan?

If a borrower defaults on a whole loan, the lender has the right to foreclose on the property. The property can then be sold to recoup the outstanding balance on the loan. This process may vary depending on the terms of the loan and local regulations.

Are there risks involved with investing in whole loans?

Yes, while investing in whole loans can offer high returns, it also comes with risks. Investors take on the risk of borrowers defaulting on their loans, which can lead to financial loss.

Who can invest in whole loans?

Typically, institutional investors such as insurance companies, hedge funds, and pension funds invest in whole loans. However, individual accredited investors may also have the opportunity to invest in whole loans through certain investment platforms.

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