Definition of cash flow mortgage

debt instrument under which all or nearly all the cash flow generated by the rental income is paid to the lender. There is no stated interest rate.

Example: An office building was in financial distress because of a weak market. The building owner could not meet required mortgage payments from the rental income at the contract rate of interest. Rather than foreclosure (which may not help the lender because of the soft market), the lender agrees to convert the mortgage to a cash flow mortgage. Under this arrangement, all the property's Net Operating Income is paid to the lender for an agreed-upon period of time. Thus, the mortgage lender receives all the cash flow from the property.