What is a Permanent Mortgage?
A permanent mortgage is a type of long-term financing typically written for a period exceeding 10 years. This loan is generally secured by real estate property and is designed to provide a stable and predictable repayment schedule. The key aspects of a permanent mortgage include substantial loan terms, long durations, and the possibility of being self-amortizing.
Key Features:
- Long-term commitment: Exceeds 10 years, often extending up to 25-30 years.
- Self-amortizing nature: Allows for gradual repayment where the principal and interest are paid off within the loan term.
- Mortgage commitment: May be required before securing a construction loan.
Examples of Permanent Mortgage
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Residential Mortgage:
- John and Mary opted for a 30-year fixed-rate mortgage with a local credit union to finance their new home. This loan ensures consistent monthly payments over the loan term and becomes fully amortizing.
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Commercial Real Estate Development:
- A real estate developer secured a permanent mortgage commitment from a savings and loan association for a 25-year self-amortizing loan upon completion of an apartment complex. This commitment was necessary to obtain a short-term construction loan.
Frequently Asked Questions About Permanent Mortgage
Q: What is the difference between a permanent mortgage and a construction loan?
A: A construction loan is a short-term loan used to finance the building of a property, whereas a permanent mortgage provides long-term financing secured by the completed property.
Q: How long can a permanent mortgage term last?
A: A permanent mortgage term typically lasts over 10 years and may extend up to 25 or 30 years.
Q: Do I need a permanent mortgage commitment to get a construction loan?
A: Most construction lenders require a permanent mortgage commitment to ensure that long-term financing will be in place once the construction is complete.
Q: Are permanent mortgages usually fixed-rate or adjustable-rate?
A: Permanent mortgages can be either fixed-rate or adjustable-rate, depending on the borrower’s preference and financial situation.
Q: Can I refinance a permanent mortgage?
A: Yes, permanent mortgages can often be refinanced to take advantage of lower interest rates or better loan terms.
Related Terms
Self-amortizing loan: A loan where the principal and interest are paid off over the term of the loan through regular payments.
Construction loan: Short-term financing used for the construction phase of a project, which is typically converted to a permanent mortgage upon completion.
Mortgage commitment: A promise from a lender to provide a mortgage under specific terms, usually required before obtaining a construction loan.
Fixed-rate mortgage: A mortgage with an interest rate that does not change over the life of the loan.
Adjustable-rate mortgage (ARM): A mortgage with an interest rate that can change periodically based on changes in a corresponding financial index.
Online Resources
- Investopedia on Permanent Mortgages
- National Association of Realtors (NAR)
- Mortgage Bankers Association (MBA)
- U.S. Housing and Urban Development (HUD)
References
- “Real Estate Principles” by Charles F. Floyd and Marcus T. Allen.
- “Mortgage Markets and Institutions” by Patrick J. Bartell.
- “The New Real Estate Game: Building Wealth Under the New Rules” by William J. Poorvu with Jeffrey L. Cruikshank.
Suggested Books for Further Studies
- “Investing in Income Properties: The Big Six Formula for Achieving Wealth in Real Estate” by Kenneth D. Rosen.
- “Real Estate Finance and Investments” by William B. Brueggeman and Jeffrey D. Fisher.
- “Language of Real Estate” by John W. Reilly.
