Nine Mortgages You Haven’t Heard Of

Piggyback Mortgage

This mortgage is a new first mortgage that closes the original simultaneously with the piggyback mortgage.  There are usually two lenders with this mortgage, without the second mortgagee assuming responsibility for the first mortgage.  The interest rate is often higher than the first mortgage because of elevated risk.

Construction Loan/Mortgage

Construction loans are generally used by builders and are usually only granted for a short period of time (12-24 months) by an institution.  Interest is paid monthly and the interest rates are higher than that of a “regular” mortgage due to increased risk.  Pre-sales of a certain amount, such as 50% for a condominium, are usual riders in such a mortgage.  The loan is expected to be paid progressively when units are sold.  Construction progress payments are made when the financial institution receives signed documents from an architect or engineer.

Bridge Financing

This is a very short term loan that covers the time gap between when a person has bought a property and sold one they owned, but they must close on the purchase before their old property is registered for closing.  The cost of bridge financing usually comes in at a few points above prime and a bank fee.

Participation Mortgage

This is a mortgage in which the lender receives a portion of the profits when the property is sold.  It is also known as a “Shared Appreciation Mortgage”.  The interest rate is usually lower than it would have been in anticipation of a payoff at the end of the term.

Development Land Loan

A land developer who has obtained a Draft Plan of Subdivision Approval will sell land (or the lots, already serviced or to be serviced) to a builder under the terms of this loan.  Terms are usually much more easygoing and at a lower interest than you would find with regular mortgages.

Leasehold Mortgage

Leasehold mortgages are used to make improvements to land, such as buildings, when that land is leased from the land owner rather than owned.

Collateral Mortgage

This mortgage is backed by both the property itself and a promissory note signed by the borrower.

Bond Charge/Mortgage or Trust Deed

These are generally only given for many millions of dollars and are given by the borrower to a trustee who holds title to the property in trust for several lenders.  The borrower must affix a corporate seal to this deed.

Adjustable Rate Mortgage (ARM)

This mortgage is rarely used for commercial real estate.  Rates are based on prime less a certain percentage.  If the prime rate changes, the rate is adjusted, usually on a monthly basis.  Principal payments are constant; it is only the interest that changes.