There are several different types of loans available today. Customers sometimes ask us to explain the difference between each type, and we are always happy to help them find the right product for their unique situation.
Think of a loan as a relationship between a lender and a borrower. Sometimes, the lender is referred to as a creditor, while the borrower is called a debtor. Lenders, such as banks, loan out money, while borrowers take out money. The total amount being lent is called the principal, and an interest rate of some type is attached to the principal. The borrower usually makes payments until the entire principal plus interest are repaid. The time frame for repayment is agreed upon when the loan is first authorized. Loans can be taken out by individuals, businesses, organizations, and government entities.
Typically, loans come together one entity giving money to another with terms for repayment of the full amount—plus interest—within a given time frame. While loans and mortgage loans bear some similarities, they are designed to serve different purposes. A mortgage loan was originally designed specifically for the purchase of real estate such as a home or a vacant parcel of land. Borrowers make payments over time until the mortgage loan is paid off, while still being able to live in the home or enjoy ownership of the property from the moment the loan is finalized, and the sale is complete. A mortgage loan is also a longer-term loan and will have a repayment schedule from 10-30 years.
“Take the time to talk to your loan officer in-person or on the phone. Having this one-on-one conversation will help identify all the options that are available.” Connie Rust, Vice President, Real Estate Mortgage Lender.
If a loan is not paid according to the terms of the agreement, lenders can take borrowers to court to recoup their losses. The borrower can expect to see a severe negative impact on their credit score. On a mortgage loan, when a borrower repeatedly misses payments, lenders are somewhat protected against loses, because they hold the real estate as collateral. Homes and land can be foreclosed upon, allowing the lender to recoup some or all of the financial losses they incur when a borrower fails to make payments.
“If you anticipate that you may be short or need to miss a payment, PLEASE contact your lender immediately before the late payment occurs. There are options available that may benefit you.” Connie Rust, Vice President, Real Estate Mortgage Lender.
Contact us today to learn more about loan products. Our team of lenders can help you find the right product to fit your needs.