Combination Loan
Officially, a combination loan consists of two mortgages taken out by the same person from the same lender. It may seem silly to take out two mortgages this way. (Why not just take out one big mortgage?) It's really a single product that's structured as separate loans, because that setup makes sense in particular situations.
For instance, combo loans are often used in home construction. The first loan is used to build the house. Then, once the house is built, it's replaced by a typical mortgage loan.
Combination loans also get used to lower down payments. A popular version of this is called the 80-10-10 mortgage. In this scenario, the home owner makes a 10% down payment for the house (typically, banks look for a 20% minimum down payment, unless it's 2006 and the mortgage industry has turned into a Wild West speculation machine). Then a conventional mortgage is taken out for 80% of the home's purchase price. Finally, the last 10% is paid for by a second mortgage.
The goal of this product is to lower the likelihood that the homeowner will have to buy private mortgage insurance, which is often necessary with lower down payments.
Related or Semi-related Video
Finance: What are Bonds?393 Views
Finance a la shmoop what is a bond? well a bond is your word your promise your [Women shake hands]
handshake your John Hancock on a contracted piece of paper your mortgage
your credit card debt yeah their bonds to your "I swear I'm not a deadbeat"
declaration... that's your bond right well bonds come [Man lying on a sofa]
in many complex flavors and compositions simply put bonds are loans aka debt you
borrow money or you promise or you you bond that
you'll pay it back when you borrow money the amount you borrow is called the
principal you pay rent on that amount borrowed and that rent is called [rent appears at bank]
interest to the entity loaning you the money that interest is called yield
thank you very much for the yield like if the lender rents you a grand for a
year and you pay them a thousand 80 bucks at year-end paying back the
principal and then the rent on the money while the lender will have had a yield [Yield of lender appears]
of 8% on the grand that they loaned you so that's a bond you borrow money you
pay it back and if you don't the person who loaned you the dough well they [Person stamped with property of shmoop bank]
generally own your tuchus and yeah you know what Shakespeare said about bonds
yeah that's what he said so if you don't really know what you're doing don't do
it...
Up Next
What are the Major Classes of Bonds? Insofar as US dollar denominated bonds go, the primary classes of bonds are: 1) US Treasury Bonds; 2) US Treas...
What are the different types of bonds? Well, a mortgage is the biggie. Then there are government bonds, which are at the bottom of the risk ladder....
When a bond is secured, it means it's protected, i.e. there are assets that would be forfeited if repayment is not made. When it's unsecured... it'...