Securitization: Definition, Why It's Used, Pros and Cons

What Is Securitization?

By Kristi Waterworth – Updated Nov 5, 2025 at 11:40 AM EST

Key Points

Securitization transforms illiquid assets like mortgages into tradable securities.
Investors can buy portions of these securities, balancing risk with potential returns.
Banks securitize loans to free up capital and enable broader investment by smaller investors.

Choosing great investments can often be really tricky since there are just so many different types out there. Among the less common investments are financial assets that have been securitized. Let's talk about what that is and how it works.

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Two people in office looking at paper with bar chart. — Image source: Getty Images.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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