Defeasance

What Does Defeasance Mean?

Defeasance is a circumstance in which a debt or bond is canceled or voided because the borrower has set aside enough money to pay it off.

Mortgage insurance can often be canceled if defeasance occurs, as there is no longer a risk of the borrower defaulting.

Insuranceopedia Explains Defeasance

Defeasance is a positive situation for the borrower because it indicates that their debt will be completely covered.

It is often beneficial for the lender as well, as it eliminates the risk of losing money due to borrower default. However, an insurer may lose a policyholder if the insurance policy is canceled because the risk has been entirely mitigated through defeasance initiated by the borrower.